31 Jul Debt consolidation: a good idea?
You have a high-interest debt and think of consolidating it into your mortgage in order to reduce the overall interest rate and, at the same time, free up a few hundred dollars every month. Is it a good idea?
First of all, it is important to understand what we are dealing with. Debt consolidation is a way of combining several debts into one debt that usually has one monthly payment. As seen above, the idea behind this process is to lower your monthly payments or the interest rate that comes with these different debts. Given this scenario, the next questions is: what is better? Paying a high interest rate for, perhaps, a few years or pay lower interest rates for maybe a few decades? In order to figure that out, you need to do the math and understand the advantages and disadvantages that come with the consolidation process.
If you are a homeowner with equity in your home, and have exceptionally high interest rates in debts, then debt consolidation can save you a great deal of money in your monthly payments. In this case, it makes sense, especially if you save money and put it towards good use, such as contributing to RRSPs, building an emergency reserve, saving for your child’s education. There are many different factors to consider: interest rate, amortization, refinancing. Do not jump into conclusions! Take your time to do the math.
However, if you are a homeowner who does not have much equity in your house, this process can become complicated. If you succeed in consolidating your debt, you can be sure to pay a higher interest rate. If you are having trouble meeting your mortgage monthly payments, debt consolidation might not be the solution for you.
Above all, remember that you have the power to control your debt if you budget. Aim for a surplus on a monthly basis. If you need help, The Costa Group is here to assist you.