Nine unsecured facilities, and nine different due dates

An operator with two inner-city venues and a home in the eastern suburbs bought a long time ago. The debt had not arrived in one piece. It had accumulated in nine, over about four years, each one a sensible decision on the day it was made.

• Four credit cards, two personal and two in the business name, all revolving rather than clearing.
• Two personal loans, one originally taken to fit out the second venue.
• A merchant cash advance repaid by daily debits, taken during a slow winter.
• Two buy-now-pay-later accounts used for equipment, which are small until they are counted together.

About $190,000 in total. The operator could tell you the monthly figure to the dollar and could not tell you what any of it cost, because nine statements do not add up in anybody’s head. The daily debits were the worst of it: money left the account before the takings had a chance to sit there.

Why minimum repayments keep the position still

A revolving facility paid at the minimum is designed to last. Most of the payment services interest and the balance moves barely at all, which is why four cards can be serviced perfectly for years without the total changing. Nothing is in arrears. Nothing is improving either.

There was substantial equity in the home. The structure was a cash-out refinance of the owner-occupied property, with the released funds consolidating the unsecured facilities into the mortgage.

How lenders actually handle a consolidation cash-out

This is worth knowing before applying, because it changes what a borrower needs to have ready.

• Payout letters are usually required for each debt being consolidated, current as at the expected settlement date.
• Lenders generally pay the creditors directly at settlement rather than releasing the funds to the borrower.
• Many lenders cap the number of debts they will consolidate in one transaction, which shapes lender selection early.
• Most require the consolidated accounts to be closed, not merely paid to zero. Some ask for evidence afterwards.
• Conduct on the existing mortgage and the recent history on each facility carry real weight in the assessment.

The merchant advance needed handling first. Daily debits distort the last three months of business banking, which is the exact window a credit team reads to assess serviceability. It was sequenced so the account statements presented the business as it actually trades.

In this scenario nine repayments become one, every consolidated account is closed at settlement, and the daily debits stop. The business banking begins to reflect the takings rather than a debt schedule, which matters for every future application.

• One secured repayment in place of nine unsecured ones with nine due dates.
• Card and buy-now-pay-later limits cancelled at settlement rather than left available.
• The daily-debit advance cleared, restoring a readable trading account.
• A single balance the operator can actually watch reduce.

The trade-offs, stated properly. Unsecured debt moved onto a mortgage becomes secured against the home, and that changes what is at stake if things go wrong. Spreading a short-term balance over a long mortgage term can cost more in total interest even at a lower rate, unless the borrower keeps repaying at close to the old level or splits the consolidated portion over a shorter term. Both were modelled here before anything was signed.

Where there is not enough equity, or the position is closer to unmanageable than untidy, consolidation may not be the right answer at all. That is a conversation about insolvency options with a qualified practitioner, and it is a conversation worth having early rather than after another two years of minimum repayments.