Debt consolidation is a popular way to avoid paying huge interest rates for existing debts. Through the process of debt consolidation, multiple debts are converted into just one easy-to-manage debt with just one billing instead of having to keep track of multiple bills a month. It works by borrowing enough money to pay off smaller debts to ‘convert’ them all into just one debt. One way to do so is to refinance your mortgage.
How to Get Rid of Debt in Canada
With recent developments in world events, more Canadians are weighed down by debts these days. Almost everyone has credit card debts, personal loans, car loans, student loans, and other types of loans. It is easy to get buried in debt just by forgetting to pay one bill every now and then. Some people are so overwhelmed by multiple bills that all they can do is to pay off the minimum or just the interest in an effort to stay on top of their bills. By doing that, they keep paying without making a dent in the actual amount owed because all their payments pretty much go to covering just the huge interests. One delayed or missed payment can cause the debt to balloon even larger because trying to handle multiple small but high-interest loans is tricky and comes with a lot of pitfalls. With all these things to consider, it is easy to see why debt consolidation is the smart way to go.
Consolidate Debt the Smart Way
Note that not all ways to consolidate debt can make things easier for you. Some still come with high interest. To save the most in interest, it is best to pick a secured loan such as a HELOC or a home equity loan if you’re not interested in refinancing your mortgage.
What makes debt consolidation attractive is it usually helps save money, time, and effort. When multiple high-interest loans are combined into a single lower-interest loans by paying all the existing past balances with the money from the new loan, you will be closing all old debts by combining them into one. When properly executed, a debt consolidation plan can ensure that the debt is paid months to years in advance as compared to the original loans.
Should You Refinance Your Mortgage for Debt Consolidation?
Refinancing your mortgage for debt consolidation is a smart way to plan a lower interest and more manageable debt. Although most mortgages charge around 5% interest, most credit cards charge 15-30% interest per month, so imagine the savings over time. You will be able to save possibly thousands of dollars just in interest but forget though that refinancing your mortgage will come with fees. Closing costs typically are charged 1-5% of the total loan and that can hurt some pockets but if choosing between this and paying 10-20% interest or more per month, it is easy to make a choice.
Is it beneficial to refinance mortgage for debt consolidation? No doubt, yes! If you have more questions or want a detailed explanation as to how some things may apply for your specific situation, then contact us at Homebase Mortgages Canada.