Philip Holland Financial Independence financialindependence

Christmas can be hard on the old credit card, and if you have existing personal loans, hire purchases, store cards, and a mortgage - theses can mount up and leave you with an unending procession of debt.

To help with the load, it may be time to consider some debt consolidation through the use of your mortgage.

If you have equity in your home, you could be able to use a facility on your mortgage to consolidate your short term debt. Shifting your bills into an extension of your mortgage, can achieve two things.

Firstly, rather than having several bills to pay each month, you could have one or two mortgage repayments. Secondly, and this is the main part, the interest you pay will be mortgage interest rates, not personal lending rates.

There is a difference to your wallet each month paying only mortgage interest rates of approx 6.5 per cent as opposed to paying up to 27 per cent for a store credit card! It makes money sense to consider your options around consolidating that short term debt. You could be paying for this kind of debt at a quarter of the original interest rate.

However, there is a trap; now your 5 year personal debt is a 30 year mortgage. This is where you now use the money you saved smartly and have your mortgage adviser set up the right mortgage strategy. The trick is to now to use some of that extra cash flow to repay the mortgage faster. How?

If consolidating your debt saved you $400 per month, why not put half back into your mortgage repayments? You could do this by either using a floating mortgage facility, or lock in an extra repayment each month onto your fixed term. If your consolidated debt totalled $10,000, extra repayments of $200 per month would clear that debt in 4 years. You have achieved two things: saved a lot in interest, and at the same time, you have freed up extra cash each month. But why stop there? Let's keep that strategy going and pay your mortgage off as well!