Years ago, I sold my car to raise money to buy my investment property.
My friends thought I was crazy because it was only a 2-year-old sports car and I was getting ‘benefits’ from the novated lease agreement I had with my work at the time.
Most importantly, they didn’t understand why I would give up on my joy to get into another debt.
I had no regret and knew I just did what needed to be done.
Get rid of the bad debt (personal debts) to get the good debt (mortgage) to buy properties to create wealth in future.
A recent research from Reserve Bank Australia shows that the overall personal debt is shrinking at its fastest rate in five years and people are getting more cautious about their level of personal debts partly due
to the increasing pressure on mortgage repayment, utility costs and slow growth in wages.
There are a number of reasons to minimize your personal debt:
It increases your overall borrowing power
Do you have multiple credit cards, however you don’t really use them?
I have had clients telling me that they have multiple credit cards, BUT the balance is zero so they could not understand why it would have any impact on their borrowing capacity when it comes to applying for their mortgages.
Simply put, a credit card is a loan, an unsecured loan against your credit whether or not you use the full limit.
Lenders will always calculate your credit card debt based on the card’s limit, instead of the actual balance regardless how much you use every month.
If you don’t need the credit cards, then reduce the limit, or even better, cancel them.
You will have a much better view of your personal finance
Having multiple personal debts such as credit cards, personal loans, and car loans makes it difficult to keep up with the repayments and the changes that your creditors might apply to your loans.
Over time, you are likely to lose track of the progress in terms of paying off the debt.
You might be forced to take on more personal debts because you can’t really save due to the existing ‘never-ending’ personal debts.
You will pay less for what you need and save more
Usually, you will be able to reduce your repayment significantly if you consolidate your short-term personal debts with your mortgage.
Consolidate your personal debts and take advantage of the low rates of your mortgage.
So you will be paying 5% rather than 10% for your personal debts in some cases.
Now, I am not encouraging you to use your mortgage to indulge yourself, however, it’s way cheaper if you HAVE to use the money.
You will pay less for what you truly need.
You take control of your financial future
Same with a lot of things in our life, one of the critical factors to being successful in anything is having the right mindset first.
By trying to consolidate all your personal debts and keep them to the absolute minimum, you have already shown commitment to better managing your finances.
It will motivate you to have an honest discussion with your family and loved ones and set the right priorities in your life.
It will take you out of your financial slump and position yourself to succeed financially in future.
It’s time to sit down and have a closer look at what you owe and see if they are structured the best way possible.
You might very well be making 6 figure from your work, however, all the personal debts are like the holes in your bucket and you need to stop the leak.
I have written a post about reducing your personal debts by consolidating them. Head over here to find out more.