Drowning in 36% credit card debt. Does it make sense to use a home loan top-up to clear it?

Using a low-interest credit facility like a home loan top-up to clear high-interest unsecured debt is one of the most effective tactical strategies available. This process is called loan consolidation and it can drastically reduce your effective interest rate. Credit cards and personal loans carry exorbitantly high interest rates that compound rapidly.

If you have access to a top-up on your existing home loan, you can usually borrow that money at around 10% interest. You take that cheaper capital and immediately use it to pay off all your expensive credit card and personal loan balances. This consolidates all your scattered obligations into one single, manageable monthly payment.

More importantly, it stops the massive wealth destruction caused by massive credit card interest rates. However, you must be extremely disciplined after doing this.

The friction of borrowing has been entirely removed today. You get SMS notifications for Rs 1L pre-approved loans and groceries can be bought on EMI. If you consolidate your debt but do not change your spending habits, you will just run up your credit card balances again.

You would then be stuck with both the new home loan top-up and fresh credit card debt. Use the top-up to escape the debt loop, but immediately cut up the credit cards so you don't fall back in.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.