Many Kiwis want to invest in property. They get excited and find a property they think will make a good investment. Then they apply to the bank for the money. And just as it seems like they’re on the path to financial freedom, the bank says “no”. Heartbreak.

What should these clients do? They still want to get ahead financially and think investing in property is the way to do it for them, but they can’t get a loan to invest. At least, not yet.

For the most part, in fact in almost every circumstance, these investors are left on their own. Bankers don’t want to help because they don’t fit the box, and brokers don’t want to help because there’s no pay day in sight. So, the clients are left to figure it out for themselves.

Now, over time the amount they can borrow from the bank will increase.

Their equity will improve as their house increases in value. And their incomes will rise through inflation and advancing their career at work. So, if you can’t get a mortgage for an investment property today, perhaps you’ll be ready in six years. But that’s still a long time away. Couldn’t you shortcut the process? Could there be a way to get it down to one or even two years? That’s what our process for getting investment-ready is all about. It gives you six real strategies you can use to get investment-ready faster. This is the fifth in our series for this magazine.

STRATEGY FIVE – DEBT DESTROYER

The Debt Destroyer is often used for people trying to get their first property or people who are earlier in their investment journey. Typically, these borrowers are younger and will often have several small debts.

By small debts I mean things like credit cards, overdrafts, hire purchases, car loans, personal loans, GEM Visas. Younger borrowers will use these to buy what they need when they don’t have a high enough income or surplus funds to save for that purchase e.g. a student might use one of these to buy a new laptop, or a young couple who have moved into their own property (renting) may get a hire purchase to buy furniture.

Confession: even I fell into this trap as a youngster. As soon as I got my first full-time job (BNZ), I took out a personal loan to buy a car.

However, what happens when you have several small debts? It becomes hard to stay on top of, and there is a risk of missing some of the repayments because there are so many. That can stop you from borrowing as the bank doesn’t think you can manage your money (what’s called poor account conduct). That’s where the Debt Destroyer comes in.

‘The Destroyer calls for you to merge your small debts into a single loan’

THE PROBLEM IT SOLVES

It improves account conduct and shows the bank you can manage your money while reducing your financial stress by bringing many payments down to one.

THE COMMITMENT

What do I need to use this strategy?

• You ideally need to have three or more debts (of those listed above) that require regular repayments.

• You will benefit from this strategy even more if you struggle to juggle all your payments.

EXACTLY HOW IT WORKS

The Debt Destroyer calls for you to merge your small debts into a single loan. This will give you one payment per month to manage, so you know when it needs to be paid, and you can plan for it.

This is often referred to as debt consolidation. It is where you apply for a loan, which is large enough to pay off all your other smaller debts. You get the money, pay off the debts, and cancel all your now paid-off credit cards, overdrafts and other liabilities.

Then you are left with a single loan. This last step is crucial. You don’t want to take on a new loan, use it to pay off your old credit card, and then rack up more debt on that same credit card.

STEPS REQUIRED

• If you already own your own home, apply to increase the size of your mortgage.
• Once the money is approved, use the money to pay off your debts.
• Then cancel your credit cards and overdrafts or other facilities.
• If you don’t have a home yet, or don’t have enough equity to increase your mortgage, apply for a personal or debt consolidation loan. Then follow the steps above.