Shifting Debt to Mortgage - Advice
I'm UK based, so things might be different across the world but I have a dilemma.
I'm currently paying down a £16k debt on interest-free credit cards. I have a plan to pay that debt down before it attracts interest, but the debt will be there until June 2022 and my cashflow is incredibly tight. I have my long-term big expenses budgeted for (Christmas, Insurances, Taxes etc.) and everything is covered, but there is really no room for a large unexpected bill.
We're about to fix our Mortgage payments for the next 5 years, and the monthly Mortgage payment will be £50 a month cheaper, so that does free up some cash.
However, we do have scope to shift the CC debt to the mortgage and free up £500 a month in cashflow.
Reading online, I understand that shifting low-interest CC debt to the Mortgage will end up costing more in the long run, as I'd be spreading the cost over a longer time. The Mortgage has 14 years left to run, and we have a good LTV that qualifies us for the best deals on the UK market. Even shifting the £16K will keep us in this bracket.
My plan for paying of the CCs is based on a snowball, so if I reduce my CC payments, I won't clear the debt before the 0% interest period finishes.
So my Dilemma is:
Keep things as is - I'd be debt-free (excluding the mortgage) in two years time, but cashflow will be tight for those 2 years, leading to a little bit of family stress. Following that, cashflow would be very much improved.
Transfer all the CC debt to the mortgage - Cashflow would increase tremendously, but I'd feel bad for "cheating" and the debt wouldn't be paid off until 2034.
Transfer half of the CC debt to the mortgage - Cashflow would be better, I'd still feel I'm "cheating", the CCs will be paid off by 2022, but half of that debt wouldn't be paid until 2034.
What are people's experiences/thoughts?
I hate debt so I would go with option 1 and pay it off as rapidly as possible. I would even try to free up more cash in other budgeted areas to accelerate the payoff if you can. I do not think it is a good idea to attach consumer debt to a mortgage. If you are not careful you could end up with a larger mortgage and even more consumer debt in the future.
There is a debt killing guru in the US named Dave Ramsey who has some good ideas about this, look him up on the internet if you are not familiar with his philosophy. You may already be aware of his point of view since you are doing the debt snowball method. Anyway best of luck.
I've been doing the debt snowball since May 2019 to pay off $28k and was down to $9k left on a HEL. I was planning to keep trying to pay it off, after building up a larger emergency fund during Covid, but then once I hit a 3 month E-fund I got a quote for a 3% interest rate refinance including the HEL. In my case I'm saving interest, since the HEL interest rate is 5.85%, and the HEL is already backed by my house so I'm not moving unsecured debt to debt secured by my house, so I decided to go with it.
If you know you can afford the payment so your house won't be at risk from the CC debt being moved into mortgage debt, you can calculate how much interest you'll be paying on that on bankrate or any other loan calculator and decide for yourself if freeing up some breathing room in your budget is worth that price. If you think it's worth it, go for it. Personal finance is personal, don't feel like you need to follow anyone's dogma...speaking as a former Dave Ramsey Baby steps person.
At the end of the day, it's a personal decision. But even if things are tight, you only got 2 years left to go on the CC debt. Considering the timeframe, I wouldn't move the debt. If an emergency arises, you might then be able to get an extra loan, attached to your mortgage or not. But why pay more interest now instead of only starting if it's needed?