Debt Consolidation Loans
If you have built up a few credit card debts or have outstanding personal loans across several lenders, you will be paying an enormous amount of interest. When you add a home loan into the mix, a fair portion of your income will be taken up simply by interest repayments for the various debts you have accumulated.
The ultimate principle here is that you pay off your highest interest debt first. So, before paying down your home loan, ensure you pay off your high-interest credit cards and personal loans first.
Another option is to consolidate your debts into your home loan. What this means is that instead of paying off a credit card with an interest rate of 18% (or higher), you will be paying it off on the same interest rate as your mortgage, which could be 3.2%, for example.
Be aware that if you use this strategy, you don’t want to now be paying off your $5,000 credit card debt over 25 to 30 years – you will end up paying more interest that way. What you want to do in this situation is to continue making the repayments you were before consolidating the debts to ensure the personal debt component of the home loan is paid out as quickly as possible.
For example, if you continued to pay the $1,000 you saved by consolidating your debts into your home loan, you would reduce the life of your loan by several years and save hundreds of thousands of dollars.