How Personal Debt Can Impact Your Home Loan
It’s easy to underestimate how much personal debt can affect your ability to buy a home or refinance. From car loans to credit cards, these small debts can have a big impact on your borrowing power.
Understanding Good Debt vs Bad Debt
Some debt helps you move forward, like a home loan attached to a growth asset. But as Paul puts it: “All those personal debts actually work against you when you’re looking at purchasing property, which is obviously a growth asset.” Credit cards, personal loans and car loans fall into the “bad debt” category. Even when repayments are up to date, lenders still view these debts as liabilities that reduce how much you can borrow.
Why Credit Cards and Car Loans Matter
A lot of people assume small debts won’t matter, but banks look at your credit limits, not just the balances. That’s why a single credit card can have such a big impact. As Paul warned on the show: “If you’ve got a $20,000 credit card, that would equate to approximately $80,000 to $100,000 worth of home loan borrowing that will be unavailable to you.” This surprises a lot of first-time buyers, and it’s often a major reason people are declined or approved for far less than expected.
It’s Not Just the Debt — It’s the Behaviour
Your repayment history is just as important as the debt itself. “If it shows you’re making regular repayments and you’re making good, then that builds up your credit file,” Paul shared. But too many enquiries or too many separate debts can raise red flags. Lenders want to see consistency, responsibility, and stability, not a spending spree every Christmas. Mel summed it up perfectly: “Most people plan to fail because they don’t plan at all.”
Planning Ahead Makes All the Difference
As Paul and Mel explained, many people don’t plan ahead when it comes to managing debt. Simple changes, like budgeting better, adjusting spending habits, and rethinking big-ticket purchases, can help you reach your property goals sooner. Even small adjustments can make a big impact over time. Swapping to more affordable shopping options, cutting back on unnecessary expenses, and reducing credit card reliance are practical steps that improve financial stability and strengthen your home loan application.
Ready to Tackle Your Debt and Boost Your Borrowing Power?
Whether you’re looking to buy your first home or refinance, BrokerCo can help you understand where you stand, and what steps to take to improve your lending options.