How to Boost Borrowing Power – Debt Management Strategy for Smart Property Decisions & Unlock Investment, Home & Refinance Opportunities (Ep. 309)

Show Notes – How to Boost Borrowing Power

In this third installment of our borrowing capacity series, Cate, Dave and Mike unpack how existing debts impact your borrowing power, and the practical steps you can take to boost it. If you’ve ever been surprised by a lower-than-expected borrowing capacity, this episode is a must-listen. 

Understanding What Debts Lenders Assess

Mike walks us through the wide range of debts that lenders factor in, including:

• Credit cards (assessed by the limit, not the balance)
• Car leases and personal loans
• HECS-HELP debts
• Buy Now Pay Later (BNPL) accounts like Afterpay
• ATO debts
• Existing mortgages

Even debts you don’t actively use, like dormant credit cards, can significantly impact your serviceability.

How Credit Card Limits Affect Borrowing Power

Dave reveals a common trap, lenders assess credit card commitments based on the limit, not the amount owed. A $20,000 credit card limit can reduce your borrowing capacity by around $93,000, regardless of whether you carry a balance.

Pro tip – Reducing your credit card limit or closing the card entirely can dramatically improve your borrowing capacity, and fast.

Illustrated Impact, Credit Card Limit Reductions

Using real examples, we show just how much cutting down your credit card limits can stretch your purchasing power,

Check out the episode graphs for a full breakdown.

Single earning $150,000

• Owner occ purchase
• Major lender
• No dependents
• Living expenses – $3,500

Couple earning $300,000 (50/50)

• Owner occ purchase
• Major lender
• No dependents
• Living expenses – $6,500

Paying Down Personal and Car Loans, What Actually Works

Cate and Mike probe a common misconception, does partially paying off a loan help? Dave explains:

• Partial repayments on personal loans or car finance don’t improve borrowing capacity
• Only fully closing the loan removes the monthly commitment from your financial profile

 

Real-World Scenarios, Closing vs Keeping Car Loans

Dave’s team crunched the numbers,

• Closing a car loan with a $943/month repayment can boost borrowing capacity by up to $190,000
• That’s the power of eliminating ongoing monthly commitments

Single earning $150,000

• Investment purchase, IO 5 years, 6.24%
• Major lender
• No dependents
• Living expenses – $3,500
• Existing owner occ loan – Balance $426,272, P&I, 27 years remaining term, 5.90%, repayment $2,669
  • Original loan – $450,000
• Car Loan – $30,292.63 – 3 years remaining – monthly repayment $943.12
  • Original loan – $47,000 over 5 years at 7.56%

Couple earning Combined $300K (50/50 each)

• Investment purchase, IO 5 years, 6.24%
• Major lender
• No dependents
• Living expenses – $6,500
• Existing owner occ loan – Balance $756,530, P&I, 27 years remaining term, 5.90%, repayment $4,745.09
  • Original loan – $800,000
• Car Loan – $30,292.63 – 3 years remaining – monthly repayment $943.12
  • Original loan – $47,000 over 5 years at 7.56%

 

Should You Pay Off Debts to Boost Borrowing Power?

It depends. Dave walks through considerations,

• Your savings buffer post-purchase
• The size of the loan being paid off
• Your preferred LVR and purchase price
• Whether the borrowing capacity increase is worth the sacrifice

There’s no one-size-fits-all answer, it’s about aligning your finances with your goals.

Alternative Strategies if You Can’t Close a Loan

If paying out a loan isn’t feasible, Mike and Dave recommend:

• Refinancing or extending loan terms to lower repayments
• Closing unused credit cards
• Using tax refunds, bonuses or windfalls strategically
• Debt consolidation to shift high-repayment loans into lower-rate home loans

 

Debt Consolidation – how it works to boost borrowing power

Mike and Dave walk through how consolidating a $30,000 car loan into your mortgage can:

• Increase borrowing capacity by up to $150,000
• Reduce monthly repayments by $750+

Single earning $150,000

• Investment purchase, IO 5 years, 6.24%
• Major lender
• No dependents
• Living expenses – $3,500
• Existing owner occ loan – Balance $426,272, P&I, 27 years remaining term, 5.90%, repayment $2,669
  • Original loan – $450,000
• Car Loan – $30,292.63 – 3 years remaining – monthly repayment $943.12
  • Original loan – $47,000 over 5 years at 7.56%

Couple earning Combined $300K (50/50 each)

• Investment purchase, IO 5 years, 6.24%
• Major lender
• No dependents
• Living expenses – $6,500
• Existing owner occ loan – Balance $756,530, P&I, 27 years remaining term, 5.90%, repayment $4,745.09
  • Original loan – $800,000
• Car Loan – $30,292.63 – 3 years remaining – monthly repayment $943.12
  • Original loan – $47,000 over 5 years at 7.56%

The Dangers of Debt Consolidation

While debt consolidation can be an effective tool to increase borrowing power, it’s not without risks. In this episode, Dave and Mike highlight why it’s essential to approach consolidation with caution and a clear strategy.

1. You Could Pay More in Interest Over Time

One of the most significant drawbacks of debt consolidation is the long-term cost. Although moving high-interest debts, like a car loan or credit card, into your home loan can reduce your monthly repayments, it typically stretches that debt over a much longer term—often up to 30 years.

For example, Dave walks us through a scenario where someone refinances a $30,000 car loan into their mortgage. Originally, the car loan was at 7.5% interest over 5 years, with a total interest bill of around $9,500. But when that remaining loan balance is rolled into a home loan at 6% over 30 years, the total interest balloons to over $34,000.

Even though the monthly repayment drops significantly, the lifetime cost of that debt increases unless you stay disciplined and make extra repayments. This is where many borrowers go wrong.

2. The Illusion of Affordability

Lower monthly repayments can give a false sense of security. That “affordable” debt can quietly grow over time if not managed carefully. If you continue making only the minimum required repayments on your home loan, the consolidated debt takes decades to repay—even though the original loan was meant to be cleared in just a few years.

3. It Can Encourage a Cycle of Overspending

Mike shares a common trap, borrowers consolidate their debts, clear out their credit cards, then slowly start building up those balances again. Without a change in behaviour or budgeting discipline, consolidation just resets the debt clock—and potentially digs a deeper financial hole.

This is especially dangerous if the person continues to take on new debts, like car finance or additional credit cards, thinking they can simply consolidate again later. It can become a repetitive cycle of debt, eroding home equity and limiting future borrowing capacity.