What are the risks and benefits of consolidating your credit card debt into your home loan?

You can consolidate your credit card debt into your home loan and this will mean you are paying lower interest and possibly lower fees but there are things you should consider.

Paying less interest and fewer fees makes the idea of consolidating your credit card debt into your home loan attractive but you have to make sure you structure the consolidation in a way that doesn't end up costing you more. As most home loans are for a period of 30 years and credit card debts are for the length of time that it takes you to pay it off you may end up paying more as you will be paying off your smaller debt for a longer period time.

Before you look at consolidating your credit card debts into your home loan and therefore extending the period in which you pay it off read our tips below on how to pay off your credit card.

Tips for paying off credit card debt

• Consider a balance transfer. This involves you transferring your debt to a new credit card which has a special low interest offer, enabling you to pay your debt off without too much of your repayments going towards interest.
• Write up a budget. Learning exactly how much money you have to spend each week, month or year is a great way to know how much you can afford to put towards shrinking your credit card debt.
• Pay the highest interest debt first. If you have more than one credit card, it may be useful to allocate more of your cash towards paying off the higher interest card first.
• Pay more than the minimum repayment. Paying the minimum repayment will keep you out of trouble with your card provider, but could see your debt paid off at a snails pace - meaning you pay a huge amount of interest.
• Put your credit card use on hold. The best way to manage your credit card debts is to stop adding to them. This means putting your card away, cutting it up, or as other more creative people have done, freezing it in a block of ice.

When it comes to consolidating your credit card debt into your home loan asking one of the big four banks will likely get a yes, a banking insider claims. The insider alleges that banks are pushing their staff to encourage customers to take on more debt despite them not being able to pay the debt back.

The banks are hoping customers spend up to their credit limit and then roll those debts back into their home loans. The scheme leaves many borrowers with debts bigger than the value of their house.

A 2011 Finance Sector Union (FSU) survey that found 51% of bank staff had seen customers being steered towards a product they did not need. The FSU said banking staff who did not meet sales targets could be fired.

In an exclusive Herald Sun interview, the Victorian bank insider revealed tricks staff use to get mortgage holders locked in a cycle of debt.

The insider claimed that:

• Some loans advertised with no establishment fees have a $200 settlement fee;
• Homebuyers with good credit histories are relegated on loans because they want to buy in outer Melbourne suburbs including Cranbourne, Pakenham, Doreen and Tarneit;
• Banks are forcing staff to sell credit cards, insurance and new accounts to get bonuses;
• Mortgage brokers get 10 times more commission than bank staff for writing new loans, compromising their partiality to clients.

The bank insider, who spoke on the condition of anonymity, alleges that banks wish to put home buyers into severe mortgage stress. 'The common argument that's used is that if you don't use (the extra credit card) it won't cost you anything,' he said. 'They are loading people up with credit because they know they will use it. I have people ringing me up a couple of times a week saying I need to roll some credit cards into my loan and tidy up the house,' he added for emphasis.

However, banks like NAB, ANZ, Commonwealth and Westpac said they were responsible lenders. Australian Bankers' Association (ABA) chief executive Steven Munchenberg said cardholders could refuse the offers and insisted banks were only offering the extra cash to customers who could afford it.

'An offer of a credit card limit increase is just that - it's just an offer,' Munchenberg said. 'And customers can choose to accept or decline the offer.'

The big four banks all rejected the banking insider's allegations, adding that they had obligations under the National Consumer Credit Protection Act.

People need to be savvy with their finances and realise that an offer to jump into credit quicksand is just an offer.  Discipline should prevail in all financial decisions.  Understand that a mortgage is for a home and not for any other purpose. Lastly, credit card and other debts are best settled separately.

It's always important to seek professional advice when consolidating debts - consider speaking to a mortgage broker in regards to your personal finance.