Should I Consolidate Credit Card Debt Into My Mortgage?
By Amie Parker
If you are refinancing your home loan and have credit card or personal loan debt, you may be wondering whether you can combine everything into one loan. The short answer is that you may be able to, but that does not automatically make it the right move for everyone.
Can You Refinance Credit Card Debt Into Your Home Loan?
Depending on your equity, financial position and the lender's policies, it may be possible to increase your new home loan enough to pay out a credit card, personal loan or other consumer debt. This is commonly known as debt consolidation. Instead of managing several debts with different repayments and interest rates, those debts are rolled into one loan.
The potential benefit is straightforward: home loan interest rates are generally much lower than credit card rates. Consolidating may also simplify your finances by reducing the number of separate repayments you need to track each month.
That said, consolidating debt into a mortgage changes the nature of that debt. Credit cards are generally unsecured, while a home loan is secured against your property. That distinction matters. The costs, repayment term and risks all deserve careful thought before you proceed. I always recommend comparing the new interest rate, fees, repayment amount and total cost before committing to debt consolidation.
A Real Refinancing Situation
I recently worked with clients who were refinancing their home loan and asked me this exact question. They had a credit card balance of approximately $5,800, with an interest rate of 20.99%, and they were making consistent repayments of $200 per month. They also had approximately $35,000 sitting in an offset account attached to their home loan.
Working through the numbers, at $200 per month and assuming the card's interest rate remained unchanged with no further purchases or fees, it would take approximately 41 months to clear the balance. Over that period, they would pay approximately $2,363 in interest.
The first option we discussed was using money from their offset account to pay the card off immediately. They could then redirect that $200 each month back into the offset account to rebuild their savings. Simple, effective, and it would remove the high-interest balance without formally increasing their home loan.
There was, however, an important consideration. Withdrawing $5,800 from their offset account would mean their home loan was effectively being charged interest on an additional $5,800 until they rebuilt that balance. At their home loan rate and rebuilding at $200 per month, the interest outcome would be broadly similar to adding $5,800 directly to the home loan and making the same additional repayments.
The difference was not purely mathematical. It came down to how the clients wanted to structure their finances. They preferred to keep the $35,000 accessible because having that buffer gave them a sense of financial security. After working through the alternatives together, they decided to include the $5,800 credit card payout in their new home loan.
Why the Additional Repayment Was the Critical Part
Their new home loan interest rate was approximately 6%. Continuing to pay an additional $200 per month at that rate would clear the extra $5,800 in approximately 32 months. The estimated interest charged on that portion of the loan would be approximately $482.
Compared with leaving the debt on the credit card, this approach reduced the repayment period by around nine months and saved approximately $1,881 in interest.
That sounds like a clear win, but the most important part of the strategy was not simply moving the debt to a lower rate. It was the clients' genuine commitment to keep paying that $200 each month.
A lower interest rate does not automatically mean a debt will cost less overall if the repayment term is substantially extended. As an illustration: if $5,800 were added to a 30-year home loan at 6% and left there for the full loan term, it could attract approximately $6,700 in interest, bringing the total repaid to more than $12,500, assuming the rate remained unchanged. That is the risk of consolidating credit card debt into a mortgage and simply accepting the new minimum home loan repayment. The monthly amount may feel more comfortable, but the debt could end up costing considerably more over time.
Keeping the repayment amount the same, even after moving the debt to a lower rate, is what allows you to benefit from both the lower interest cost and a faster repayment period.
What Can Make or Break This Strategy?
For debt consolidation to work as intended, two things matter particularly.
First, the credit card cannot simply be cleared and then used to accumulate a new balance. Otherwise, you may end up with the original debt inside the mortgage as well as a fresh credit card balance growing alongside it. Depending on your needs and the lender's requirements, it may be appropriate to close the card or reduce its limit after it has been paid out. Even when a card has a zero balance, its available credit limit may still be factored into how a lender assesses your home loan application.
Second, you need to genuinely make the additional repayments you have planned. It can help to automate this so it occurs immediately after payday. Whether the extra money goes directly into the home loan or into an offset account, the important thing is that it consistently reduces the amount on which interest is being calculated. Without that discipline, debt consolidation can end up moving the problem rather than solving it.
When Might Debt Consolidation Be Worth Considering?
Refinancing credit card or personal loan debt into your mortgage may be worth exploring when:
The new interest rate is substantially lower than what you are currently paying.
You have enough equity and borrowing capacity to support the increase.
The refinancing costs do not outweigh the potential savings.
You have a realistic plan to repay the consolidated amount within a defined period.
The original credit facility will be closed, reduced or managed carefully going forward.
The strategy still leaves you with an affordable financial buffer.
Depending on the lender's assessment approach, paying out and closing a credit card or personal loan may also reduce the existing commitments included in serviceability calculations, which can affect how a home loan application is assessed.
That said, every situation is different. A lender must still assess your income, expenses, debts, credit history, equity and ability to afford the proposed loan. Refinancing can also involve application fees, discharge fees, valuation costs and changes to loan features, all of which need to be factored into your comparison.
The goal should not be to make the debt less visible by folding it into the mortgage. The goal should be to place it on a lower rate, prevent it from growing again and repay it within a clear timeframe.
Thinking About Refinancing and Debt Consolidation?
If you are considering refinancing and wondering whether to include a credit card, personal loan or other debt, I can help you compare the available options. We can look at the interest cost, proposed repayment period, refinancing expenses, effect on your cash flow and whether the strategy is likely to suit your broader financial goals.
This article contains general information only and does not constitute personal financial, legal or tax advice. The calculations shown are illustrative and assume consistent monthly repayments, no additional transactions or fees, and unchanged interest rates. Actual interest charges and repayment periods will depend on the relevant lender, loan structure, repayment timing, fees and future rate changes. Credit is subject to lender eligibility criteria, assessment and approval. Consider seeking advice appropriate to your individual circumstances before refinancing or consolidating debt. If you are experiencing financial hardship or are unable to meet your repayments, contact your lender or the National Debt Helpline.