If you are one of the many Canadians who is struggling with high interest consumer debt, you are not alone. Many people through a variety of circumstances find themselves in situations where they owe large amounts of money to creditors. The interest rate of this debt may be very high, and their financial circumstances are such that it may seem like it will take forever to get out of debt. It may even seem impossible.
The good news is, that it is, in most cases possible to get out of debt. And you may be able to get out of debt faster than you think with a strategy called debt consolidation.
Over my career, I have helped many people consolidate their debt so they can get out of debt faster!
Debt consolidation simply means taking all your high interest debt and paying it off with another loan. So, everything you owe – credit cards, student loans, payday loans, car loans, etc. are consolidated under one loan.
You still owe the same amount of money at this point, but now you will be paying a lower overall interest rate, and you only have one easy and convenient payment to make to a single creditor each month instead of juggling multiple bills.
While this may not seem like a big step, this reduction in your interest rate could end up saving you hundreds or maybe even thousands of dollars each month. You will be paying more money on the principal of your debt which will result in you being able to get out of debt faster.
Debt consolidation can work in several different ways. And the method of debt consolidation that you should choose really depends on your unique circumstances. When you meet with me for a consultation, I will assess your situation and help you determine the right strategy for you.
The most common methods of debt consolidation are as follows:
If you own your own home, a second mortgage is a cost-effective way to consolidate your debt. This is where you borrow from the equity in your home to receive a lump sum which you can use to pay off your creditors.
Your second mortgage is a debt that you will pay off each month – just like you do your first mortgage. Because you do not have to break your first mortgage when you get a second mortgage, there is no penalty fee. And the interest on a second mortgage is among the lowest you can find in a debt consolidation loan (second only to mortgage refinancing).
And since most lenders will allow you to borrow up to 80% of your home equity, the amount you can borrow could be substantial.
If you are close to your mortgage renewal date, mortgage refinancing could be another option for you for debt consolidation. This option means breaking your current mortgage and replacing it with an entirely new one. This new mortgage will need to be high enough to both cover your current mortgage and to pay off your other creditors.
Because you are breaking your first mortgage, there will be a financial penalty to pay with this option however the interest rate will likely be a little lower than that of a second mortgage. Over time, this reduction in interest could equate to thousands of dollars
To determine whether you’d see more savings with a second mortgage or mortgage refinancing, I can run some calculations for you. Whether you choose mortgage refinancing or a second mortgage, the goal is to save as much money as possible so that you can get out of debt.
Unlike the first two options, this third option does not borrow from your home equity. This makes it a good option for those who do not own a home, or those who do not have enough equity in their home to cover their other debts. It can also be a good option if you are simply uncomfortable borrowing from your home equity.
This unsecured loan, is simply a loan that you use to pay off your other creditors. Because it is unsecured, this option has the highest interest rate of the three however, it should still be lower than the rates you are paying on your other loans.
Consolidating your debt has a number of benefits and advantages including:
If you are struggling with debt and would like to explore debt consolidation as a way to work toward finally becoming debt fee, I can help. Contact me today to arrange for your free consultation.