Refinancing your mortgage to consolidate debts is one of the best ways to get a handle on those debts. There are various reasons why this approach is suitable for many people but the most obvious one is that it’s always best to park your high-interest debt at the lowest interest rate possible.
What does that mean? Simply put, it’s about taking all your high-interest debts and shifting them over to a creditor that offers a lower rate. By doing this, less of your scheduled payment will go towards servicing the interest, and thereby, more of the principal amount is paid off. A Mortgage typically offers the lowest interest rates because they offer the creditor collateral against the overall debt. In other words, they have your home as a safety net. In fact, one of the reasons unsecured debts have a higher interest rate attached to them is because they do not have collateral to protect against their losses, other than the threat of “bad credit” to the borrower.
Another reason to consolidate your debts by refinancing your mortgage is that it makes it easier to keep up with the debts by virtue of having only one payment to worry about. For example, if you have 5 separate bills, with different payment amounts (and schedules), it could be easy for payments to be missed or just plain exhausting to keep up with. By having those 5 debts consolidated into your mortgage, you only must make that one scheduled payment which ultimately services all those combined debts.
Furthermore, by combining all the debts into your mortgage, you would essentially clean and preserve your credit strength. If you have already experienced blemishes on your credit report, then this would help in the “rebuilding” process which helps you in the future with your borrowing needs with favorable offers.
Lastly, one of the top reasons homeowners refinance their debts is to increase their monthly cash flow. High-interest debts can siphon away your hard-earned money on just interest alone. This leads to many homeowners living “paycheck to paycheck” while relying on their credit cards to finance their lives (in between those paychecks). Therefore, it’s very appealing for most homeowners to refinance their homes for the purpose of consolidating their high-interest debts. Ultimately, it can bring down their payment obligations by hundreds or thousands of dollars per month. Any decrease in this payment pressure only increases the amount of disposable income you and your family can have each month.
Are you juggling multiple debts and think you could benefit from this approach? Give us a call and let’s figure out how much more of your money, you can keep for yourself. (905) 455-5005.