As we close on the ‘spending season’ it’s a timely reminder to be aware of the potential financial damage that can occur if you rely on short term debt to fund it. There are far better ways to approach this spending then relying on your credit cards.
Consider a family, they have an existing mortgage of $300,000 and on average have around $300 a month left after all bills/ spending etc. In December/ January with travel, holiday accommodation, presents plus entertainment they will spend an extra $3500 in this period. If this is put on the credit card (assuming 20% interest), and it has a zero balance at this point, and paid off at $300 a month from January it will take 14 months to zero this balance. So there will still be money owing at next Christmas!
As this monthly credit card repayment is basically accounting for all their surplus money it also means they are operating very inefficiently. When you owe $300,000 on a mortgage it seems crazy to be throwing your extra money into paying off a $3,500 debt. Put it this way, paying an extra $300 a month on a 30 year mortgage of $300,000 will save you $135,000 in interest costs, if not more.
Adding the $3500 into your home loan would make an almost unnoticeable difference into your monthly payments, however the $300 a month extra in to your mortgage makes a world of difference. This festive season it will certainly pay to get money savvy.
If you have a mortgage it is very important to manage this debt well, a mortgage plus other short-term debt will ensure you are paying them for the next 25-30 years when there is no reason it could not be 15-20 years.