Good Debt vs Bad Debt

 

Nova Financial Ltd featured in Property Question Time on the Property Sky Channel 198

Our Managing Director Paul Mahoney on the Expert Panel:

Bonnie Bilson: And I’m gonna go straight to James Jenkins with his golden nugget of today.

James Jenkins: Okay, so today we’re looking at debt consolidation. Historically, in the mortgage world people have borrowed money on loans, credit cards, car finance and then looked to consolidate that debt up with their mortgage payments to reduce their monthly outgoings and wipe the slate clean effectively. Now that for years and years has gone on, but currently that’s becoming a very hot topic within the financial conduct authority.

Whereby as advisors now, we’re being strongly encouraged to deter debt consolidation, to look more closely at what the client’s interest rates they’re paying on these loans and credit cards. A good example, if you now have lower percent credit cards, it’s very unlikely that it’s gonna be seen as good advice to consolidate those debts up with our mortgage.

So main thing is to make sure that clients are aware that they’re not looking to just take debt out and then put it on their mortgage. A lot of lenders these days will only allow one lot of debt consolidation, if you try and do it again, they’re not gonna allow you to do that. So your choices in terms of being able to debt consolidate are disappearing. So really it’s bit of warning and bit of a thing for people to be aware that, that option of just keep pounding debt into the mortgage could well be disappearing over the medium to long term.

Bonnie Bilson: Brilliant, thank you. So really be aware of your options and that they might be a bit more limited now.

James Jenkins: Absolutely and take advantage of the fact that there are lower percent credit cards out there. So if you got lower percent credit cards don’t automatically think of rolling it up and saving money monthly but putting it on your mortgage, that’s gonna mean you’re paying an awful lot of interest over an awful lot of time compared to what you were paying on a lower percent credit card. So yeah, make sure you think things through properly.

Bonnie Bilson: Perfect, thank you. And Paul did you have anything to add in that area?

Paul Mahoney: Yeah, well it’s been quite widely reported lately that consumer credit’s been rising. And that’s potentially why the FCA’s getting concerned about these things ’cause people don’t see it as something they need to ever repay. But of course you do. So sometimes just short term pain can result in some long term gain. And also understand the different between good debt and bad debt. And my differentiation there is good debt is investment debt, it’s debt that helps you improve your finances, whereas bad debt I consumer credit, even your home loan. It gives you somewhere to live but doesn’t improve your finances.

T: 0203 8000 600 W: Nova.Financial E: info@nova.financial

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