Question:

Does it make sense to combine my debts?

Answer:

Mary Holm: In most cases, yes.

For a start, it makes life easier to put all your debts together, so you have just one payment to deal with.

And adding credit card and hire purchase debt to your mortgage is certainly better than taking up other debt consolidation offers that sometimes charge interest as high as - if not higher than - credit cards.

The big advantage of adding your debt to your mortgage is, of course, that you pay lower interest.

But there are two disadvantages:

• You may have to pay early-repayment charges on the other debts. Make sure your interest savings will more than make up for that.
• Unless you take steps to avoid it, you turn short-term debt into long-term debt. By repaying the money over a longer period, you can end up paying more total interest despite the lower rate.

The trick is to continue to pay off the same amount as you would have paid on the high-interest debt, in addition to your regular mortgage payments.

That way, you will get rid of the debt faster and end up with a genuine interest saving.

While we're at it, try not to take on any more high-interest debt. If you save for items before buying them you will end up much better off.

 

 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.