Short Term Debt = Repayment Killer

Short-term consumer debt can be the difference between getting the loan you need or want.

It can significantly impact your ability to borrow funds from the bank.  When you're loaded up with personal loans or credit card debt, the money you allocate towards repayment can’t be used to service a mortgage. Even having a credit card with a high limit, irrespective of whether you actively use it will reduce your borrowing ability. Banks always assume the worst and hypothetically consider you max out the credit limit and only making minimum payments.

So…it's a good thing to give short term debt a bit of a swerve if you, or if you already have debt in place, to clear it before applying for a loan. By doing so, you demonstrate financial responsibility to the bank, and improve your borrowing capacity. Rather than relying on credit cards for daily expenses, prioritise building up savings. This financial cushion will provide a back stop against unexpected expenses without resorting to debt.

For those already burdened with short-term debts like credit card balances, it's advisable to reduce these liabilities as much as possible before seeking a loan. This proactive approach not only boosts your chances of loan approval but also secures more favourable loan terms.

In essence, minimizing the weight of short-term debt hanging over your finances improves your prospects for borrowing funds from the bank to buy your first home or invest in properties. Therefore, go easy with your finances, really strive to eliminate outstanding debts (or not get them in the first place) , and present the best ‘financial you’ to the bank.