Are your clients writing New Year resolutions with you?
If your clients are anything like mine, they get a spark of inspiration regarding their financial goals at the beginning of each calendar year. It must be spawned by the New Year’s Eve fireworks. People reflect on the year that was and commit to making the coming year even better. And I love it. They might commit to buying a new home, or helping their kids make an investment. More often than not, they decide to remedy their disparate debts.
Debt consolidation is a common New Year's resolution. Crushing credit cards, eradicating Missing In Action superannuation accounts, or folding costly personal loans into more affordable mortgage repayments. In January, people resolve to stop ‘buying now’ and ‘paying later’, and aspire to centralise their debt with the aim of eliminating it, where possible. Of course, mortgages are not so easy to erase, but the others can be wrangled rather effectively.
The key mistakes I see made are:
- Consolidating too many credit cards onto one, and then facing a crippling minimum payment, or
- Having so many separate credit cards on the go, with bits of debt here and there, that managing repayment schedules becomes like herding cats
But the key opportunities for those resolving to get off the revolving credit wheel are:
- Making consumer debt manageable. Converting the small debts into a personal loan, or refinancing it into their home loan.
- Releasing mortgage cash. Your clients can consider releasing equity from their home loan to pay down consumer debt. The basic equation is that you use the mortgage at 3 per cent, for instance, to eliminate debt that’s costing you 15 per cent, for example.
- Refinancing an outdated loan. If it’s been five or more years since your clients took out a loan, they’re definitely due for a home loan review. They’re probably paying a surplus amount in these low interest rate times.
Would you like me to help your clients meet their new year’s resolution? I’d be delighted to help.