If you are a home owner in BC with a mortgage, credit card debt, store cards, interest free deals that are expiring soon, personal (LOC) lines of credit, car loans or personal loans you could uses this how to techniques to better your cash flow and help improve your credit score. If you are a home owner with only a mortgage and low debts these debt consolidation techniques probably do not apply to you.
Debt consolidation is a simple process and this process happens every day in Canada. Debt consolidation can be a life changing for individuals looking to reduce their monthly payments. What are the signs that debt consolidation might be right for you and how should you determine what debt consolidation program you should undertake?
In simple terms the combining of several small debts or different institution facilities into one more manageable payment is debt consolidation. This often means paying out higher interest or shorter amortization debts like personal credit cards, car loans, unsecured lines of credit, taxes, medical bills into on lower interest mortgage loan usually an interest only loan.
- Lower Payment & Payment Management – By eliminating multiple payments at different times of the month and replacing these payments with one simple payment.
- Lowering Your Monthly Payment – By providing an interest only loan or stretching out your amortization to reduce your monthly payment intern increases your cash flow.
- Saving You Interest – In some cases when credit card interest rates are very high a much lower mortgage rate can give consumers greater interest savings on debt.
Now a single monthly payment may be a bit misleading in terms of the true cost savings of a debt consolidation. The saying “if it’s too good to be true it probably is” applies. The catch is you can not significantly lower your monthly payment AND save thousands in interest costs. Debt consolidation can be an important step in managing your debts but home owners must understand a few vital facts:
- Debt Consolidation & Mortgage Refinancing often to payoff bills is a poor idea in terms of a financial strategy. It is a bit of a yo-yo affect that keeps you in a cycle of debt consolidation.
- Credit Cards & other debts used irresponsibly can lead you into a game that you will end up losing. The mounting costs of interest rates and costs associated with refinancing debt will eventually erode your saving or home equity.
- Using debt consolidation to lower your monthly payments means banks & other lenders benefit by lending you money. If one end benefits by earning interest on their money then the borrower looses by paying higher rates to borrow money.
The availability and easy access to debt consolidation can have a negative impact on borrowers in Canada. If it is so easy to consolidate debts then it is also easy to accumulate debt and this leads into old habits. Every time someone uses home equity to consolidate debt it lowers the equity in there home. Next time you look to put something new on your credit card or pay for a vacation on credit without the means to pay it off immediately you need to ask yourself “is this how I want to live?.