Sometimes we get in over our heads financially, and before you know it debt has piled up higher than we can handle it.  This might be due to a period of unemployment or illness, or simply from not having managed money carefully enough.  There are several strategies to bring debt under control.  One of these is “debt consolidation”.

Debt ConsolidationThis strategy brings all your various debts (such as credit cards, car loans, payday loans, etc.) together into a single monthly payment that is easier to keep track of, easier to manage, and if the interest rate is lower than the interest rates on the individual loans that were consolidated, easier to afford and quicker to pay off.  Banks and other financial institutions offer consolidation loans, and so do private lenders.  Sometimes a line of credit can be used to consolidate some of your debts.

The benefits of a debt consolidation loan are several:

  1. Fewer bills to pay means less stress.
  2. Fewer bills to pay means less risk of missing a payment.
  3. Fewer bills to pay mean fewer late fees to pay.
  4. A lower interest than the average rate of the paid-off loans means less interest to pay.
  5. Less interest to pay means more principal can be paid off.
  6. More principal paid off means you can reduce your debt faster.

A debt consolidation loan can help you pay off your debt quicker and reduce the kind of missed and late payments that will lower your credit score.  In the end, you’ll qualify for a mortgage easier and quicker, and likely for a lower rate, as a result of the discipline that the debt consolidation loan instils.

Your first step is to look at all the places where you have debt.  Whom do you owe money?  How much do you owe to each company?  And what is the interest rate of each loan?

Interest rate is the key.  If you are paying 18 percent interest on a credit card balance and four percent on your mortgage, it is the credit card debt that you want to either pay down fastest or transfer to a lower-interest loan.

Mortgages are great for consolidating debt.

If you have a fair amount of high-interest debt, such as credit cards, you might want to see if you can refinance your house to pay them off.  Mortgages tend to carry a much lower interest rate than credit card debt, so folding them into a mortgage can reduce your monthly payments substantially.

Consider how much you are paying in interest on $10,000 of credit card debt each year.  Almost $2000 in interest.

Now consider how much you would be paying in interest on that same $10,000 by transferring it over to your mortgage.  Perhaps $400 or $500.  That’s a big difference.  And you can use that difference to pay down $1500 of debt each year.

If you need refinancing for debt consolidation, contact us at at www.alberta-mortgages.com

What is important once you have a debt consolidation arrangement, is to not run up credit card debt again.  Stash your cards where you won’t be tempted to use them, pay cash and remain determined to avoid whatever expenses are not absolutely necessary.

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