Debt is on the rise…  

It seems like this is the time of year when we hear a lot about household debt.  In one bankruptcy blog, the author writes that while a lot of focus has been directed at the real estate market, in 2015, consumer credit – i.e. non-mortgage debt – grew again, at a rate of 2.8% year over year.   He comments, “That’s debt that is incurred largely to meet our desire to buy ‘things’ and doesn’t build much value in the long term. This debt … [is] usually the tipping point for most people and it’s often the most expensive debt.”  It’s also debt based on a gamble – the gamble being that unsecured debt rates will stay unchanged.  If rates do rise, this may get hard to handle.

Is this you?  Are you stuck with high interest debt?

If your debt is piling up – credit cards, store cards, car and loan payments– then the interest that you’re paying could be standing in the way of your financial security. If interest rates rise, it could get a lot worse.

The good news is that if you own a home with some equity in it, you might be able to use that to juggle everything around and make huge improvements to your monthly cash flow.   Once you have some financial breathing room, you can either use the money left over to make extra payments on your mortgage, or to start contributing to savings again.

Roll up all the high interest debt and consolidate it into your mortgage

A debt consolidation, or mortgage refinance, is pretty simple.  You roll up all the extra debt you have outside your mortgage, and you consolidate it into a new mortgage.  As long as you’ve built up some equity in your home, then this consolidation is the simplest way to power through your debt.

One key advantage is the lower interest rate

With your mortgage, you can lock in at a rate that is usually a huge drop from what you’re paying on credit card and unsecured line of credit balances, and even most car loans.  You’re trading your higher-interest loans for one easy lower interest payment.

The other big advantage is cash flow

If you’re struggling with your monthly debt load, then a consolidation can offer big relief.  So dig out your credit card and loan statements. Write down the balances for each, note the interest rates you’re paying, and jot down the monthly payment amount. Then sit down with a good mortgage professional who can crunch the numbers for you, to help you get a realistic appraisal of your options and savings.

This is not for everyone

You only want to do this if you can stick to a new financial routine. Talking to a financial advisor who specializes in cash flow planning can be a huge benefit.  What you don’t want is to do the mortgage refinance, and then find yourself slipping into the same habits that built your debt up in the first place.

As well, if your current mortgage balance is more than 80% of the current value of your home, a mortgage refinance with a traditional lender won’t be an option. If there is too little equity at this time, you may not be able to do a refinance at all.  You need to talk to an experienced mortgage broker with these options to make sure you’re getting a thorough mortgage plan, that will provide you with the steps to get you back to strong financial standing.

Let me know if I can help you with your analysis.  I’m happy to help!

Photo [c] Giuseppe Ramos for vecteezy