Australian borrowers, particularly those with mortgages, should be mindful of their existing debts

Australian borrowers who are planning to apply for a mortgage need to be able to keep their existing financial obligations in check to avoid being caught in a debt trap.

The holiday season typically results in many Australians making poor money decisions, said Louisa Sanghera, director and principal broker at Zippy Financial.

"Rather than live within their means over the holidays, unfortunately, many people opt to overspend on their credit cards, which will take them months to pay off – if at all," she said.

For those who want to begin this year with a clean slate, Sanghera said there are three ways to make sure they are able to manage their loans more efficiently. One of the easiest is to avoid depending on credit cards.

While it is not entirely bad to use credit cards, Sanghera said borrowers need to know that they have to pay off the balance each month.

"Often, I've seen potential clients who have been using their credit cards to pay monthly bills such as gas and electricity but who haven't been paying off the balance each month," she said.

Skipping a month to pay utilities could translate to a 22% increase in costs due to interest charges.

"Can you imagine if your utility provider sent you a letter saying their rates were skyrocketing by that amount? You would be livid, yet far too many people are already overpaying due to poor budgeting as well as money mismanagement," Sanghera said.

Another option is for borrowers to transfer their credit card balances onto a zero-interest-rate credit card and to create a repayment plan. When doing this, however, borrowers need to stick with the repayment terms.

"One of the reasons why so many people struggle to pay off their credit cards is their sky-high interest rates, which makes it take so much longer to repay the debt," Sanghera said.

Borrowers can also consolidate debts from credit cards onto a short-term loan on their mortgages or even onto personal loans.

"Personal loans generally have interest rates half that of credit cards, while mortgages are only about 3% at the moment. Both of these strategies, together with repayment plans, will enable people to pay off their debt much more quickly," she said.

The key to managing debts is to stick to the repayment plan diligently throughout the year, Sanghera said.