Whether you are experiencing a financial holiday hangover or a mid-year financial slump, debt can weigh heavy. Consolidating your debt can be a useful tool for people looking to reset their financial perspective and get on track towards lower payments, less debt and financial security.
What is debt consolidation?
Before you can decide if debt consolidation is right for you, it is important to understand what it means.
“Debt consolidation is the act of taking multiple debts, from multiple lenders (ex: credit card debt, student loan debt, debt from a line of credit, etc.) and putting them together into one combined payment.”
Typically, the idea is to take debts with higher interest rates and combine them into something with a lower interest rate to save you money each month. Having to make a single payment each month also makes for easier budgeting and payments, which avoids additional late and interest fees. This frees up cash for saving, future renovations and investments. It should be noted that debt consolidation does not lower the amount of debt you actually have, it simply changes how you pay it and at what interest rate.
How to consolidate your debt?
There are many different ways to consolidate your debt. You can either do it yourself, with the help of a financial advisor or mortgage broker, or through a debt consolidation service. Doing it yourself is possible, but may be overwhelming, especially if you have a lot of debt. If you do choose to take it on DIY-style, make sure you do your research. There are countless loans that you can consolidate your debt into (personal lines of credit, HELOCs, mortgages, etc.) and each have their own pros and cons. Be aware that most lenders will have to assess your financial standing before allowing you to borrow any money, which may result in multiple credit hits and a reduced credit score. To avoid this, consider speaking to a professional who has the knowledge to assess your options quicker and without causing major damage to your credit. Mortgage brokers and some financial advisors don’t cost you anything and can provide valuable knowledge.
What does debt consolidation have to do with mortgages?
“Debt consolidation is a tool that can be used improve the financial situation of homeowners with existing mortgages.”
As a homeowner, your mortgage broker can help you access certain consolidation methods that can help lessen the burden of debt. Regardless of if you are feeling the pressure of some major credit card debt you racked up over the holidays, or you need to free up cash to do a renovation that just became urgent, your mortgage advisor may be able to direct you towards some debt consolidation options to help. Depending on the amount of equity you have in your home (ie. how much of your home’s value is paid off) you may be able to use this money to consolidate your debt and therefore avoid the high interest rates. Alternatively, you may be able to consolidate under a personal consolidation loan, but a good mortgage broker will have the knowledge and resources to direct you towards the best option. For example, in addition to Tim’s 12 years of experience, he has affiliated, qualified credit professionals just a call away for those with a trickier financial history.
In more severe cases, your mortgage broker may refer you to a Debt Consolidation Program or Proposal. This option may not immediately pay off all your debts. Instead, they may take a monthly payment from you and manage the payment of your various debts for you. While this sounds like a great option, these programs are only suited for those with major credit challenges and significant debt. A credit professional, like industry leader Richard Moxley who works with Kardia Credit Solutions, can provide easy, judgement free recommendations to help you move forward, and away from debt. You can learn more about Richard by clicking here.
At the end of the day, with the proper guidance, debt consolidation can be a great tool for homeowners to lessen the burden of accumulated debt. If you feel like this is a good option for you, take the time to get started It doesn’t cost anything to ask the right questions and most mortgage broker services are completely free to you (click here for info on how).