“Debt Consolidation” is a term we often hear on radio or TV advertisements. Unfortunately, many of these advertisements do not explain very well exactly what debt consolidation is! The purpose of this article is to clear up some of the confusion around debt consolidation and to give you an understanding of how it can help you save money while paying your debts off sooner.

Turning Many Debts into One Better Debt

The concept behind consolidation is to take multiple high-interest debts–such as credit cards, lines of credit, auto loans, etc–and merge them into one low-interest debt. What this allows you to do is reduce the overall monthly payments and interest you are paying on your debt. By consolidating, you are able to free up monthly income which can no be used to accelerate debt payments, pay for other necessities, increase your retirement savings, or simply create a little (or a lot) more breathing room at the end of each month.
Using your mortgage to consolidate
Due to the historically low interest rates being offered, your mortgage is usually the best way to consolidate debt. By refinancing your mortgage, you can build your high-interest debts into your low-interest mortgage and realize the benefits outlined above. Even if your mortgage is not maturing in the near future, it may still make sense to refinance now to take advantage of the thousands of dollars in interest you can save.

Debt Consolidation Common Questions and Answers

• What does it mean to “refinance”?

Simply put, refinancing is when you renegotiate the terms of your mortgage. People often do this after they have paid off a portion of their original mortgage and want to re-borrow money by increasing their mortgage.

• Will debt consolidation hurt my credit?

Debt consolidation should not be confused with a consumer proposal or bankruptcy where your credit is damaged for a period of time afterwards. Debt consolidation is simply a money management strategy. In fact, by better managing your debt, consolidation can actually improve your credit rating!

• How much can I consolidate?

If you own a home, you can refinance up to 90% of its market value. For example, if the market value of your home is $200,000 you can borrow $180,000 ($200,000 x 0.90) against it. Subtract the amount you currently owe on your mortgage and you will be left with the available “room” you have left to consolidate other debts. For example, if your current mortgage balance is $100,000 you can consolidate up to $80,000 worth of other debts into your mortgage.

• Why haven’t I heard of this before?

As mentioned at the beginning of the article, there is a lot of confusion about what debt consolidation actually is. This is understandable since banks do not normally promote this idea; they would rather see their clients take out lines of credit–which charge higher interest rates and make the bank more money. Fortunately, people are becoming more aware of their options and are seeing that debt consolidation is a great way to reduce debt faster and free up extra cash each month.
Debt consolidation is a great way to minimize your monthly payments, save thousands in interest, pay down your debt sooner, and reach your financial goals faster. If you are interested in finding out more, please feel free to Contact me if you would like me to review your details with you.
If you have any questions about this or any other insurance, call me at 613.286.6841 or e-mail me info@AndrewWBradley.ca.
The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice (preferably me) before making any decision in relation to your particular requirements or circumstances.