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debt Is it Wise to do Debt Consolidation Loans on your Mortgage?

This is one of the most common debt consolidation questions people ask.  But realistically one would have to answer yes and no to that question.  How come?  Well let’s take on one at a time.

Debt Consolidation Loans – No It Is Not Good To Use Your Mortgage If…

If you are doing to do debt consolidation into your mortgage you will see a drastic improvement in your monthly cash flow.  But isn’t that a good thing?

Well I said “NO” above because, if you are going to spend all this extra money you have left at the end of the month, you’ll be paying back that debt consolidation loan over 20 years. That means you will have short term cash flow relief, but you will may much more interest over the 20 years.

So what can you to do prevent it.  You can avoid paying all that interest by ploughing back at least half of what you will be saving into your bond, over and above the regular installment.  That will ensure you pay back the bond quickly and save thousands in interest.

Debt Consolidation Loans – Yes It Is Good To use Your Mortgage

It can be very good to use your mortgage because not only will you have much more money left at the end of the month (as mentioned above), but you will save on interest.

But that sounds like a contradiction of the first “NO” point?

Well it is not.  If you use your mortgage for debt consolidation it means you will be replacing high interest debt like: personal loans; credit cards and accounts, with a lower interest debt, your mortgage.

Credit cards and personal loans, at time of writing, are in excess of 20% interest, whereas the current prime interest rate on a bond is only 10.5%.  So this would make more sense.

To sum up, it can be beneficial to do debt consolidation loan into your mortgage or it can be a disaster, but if you know the pitfalls you can protect yourself.

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