High-interest debt – such as credit cards and personal loans – can be challenging to manage and pay down. The high-interest rate tacked onto many types of loans makes it very hard just to pay the interest portion of the debt, let alone the principal. As such, these high-interest loans can get in the way of achieving financial freedom.
That said, there are ways to tackle these types of debt. If you currently own a home that has a certain amount of equity built up in it, you may have a solid source to help you better manage your debt.
More specifically, consolidating high-interest debt into your mortgage can be a great way to finally whittle down your outstanding balances.
Consolidating Debt Into Mortgage Canada
Debt consolidation essentially involves taking out a new loan to pay off other high-interest debts. This basically means that several sources of debts are combined into one larger debt, typically at a much lower.
If you own a home, however, you can use the equity in your home to consolidate your debt. By refinancing your existing home loan with a debt consolidation mortgage, you can pay off some of your higher-interest debt, especially credit cards, which can come with rates as high as 20% or more. With such interest rates, the outstanding balance can easily mount month after month if only minimum payments are made.
Consolidating your debt into your mortgage can help you better budget your finances and come up with a payment plan that will help you pay down your debt sooner rather than later. You can do this by using your home’s equity to secure a home equity loan or line of credit. This will give you the opportunity to get a lower interest rate with a higher credit limit using the equity that’s been built up in your home. Essentially, your home’s equity serves as security for the loan.
By consolidating all of your debt into a loan or line of credit, you’ll be afforded with the benefit of only having to manage one consolidated payment instead of having to handle many different bills from various creditors. In addition, consolidating your debt into your mortgage also allows you to take advantage of a lower interest rate, making your debt more affordable and easier to pay off.