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18 Jan

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Debt consolidation is an excellent way for people in debt to get better control of the money they owe. It offers a solution that combines all your debt from things such as credit cards and lines of credit into one large balance under one account with a lower interest rate. This allows you to easily budget your debt repayment while also reducing the amount of interest you pay over the life of the debt. There are many ways you can arrange for debt consolidation, including a debt consolidation mortgage if you own your home. Below, we discuss how debt consolidation mortgages work, why you might consider one, and how to decide if it is right for you.

Who makes a good candidate for a debt consolidation mortgage?

You make a good candidate for debt consolidation if you:

  • Fear you are getting behind on your bills
  • You owe money on credit cards with high rates
  • Your debt is owed across multiple lenders and credit cards
  • You owe money and have equity in your mortgage

If any of these points sound like you, or worse, you have all of these challenges; then debt consolidation could be the answer to your financial woes.

Why consider a debt consolidation mortgage?

There are many reasons to consider a debt consolidation mortgage, including:

  • You are losing sleep over the money you owe
  • You are barely able to pay the minimum on your credit card statements
  • It is becoming harder to make ends meet, such as paying for groceries, rent, or your cell phone bill
  • You are ready to become more financially responsible
  • You want to contribute more to savings

If you are not managing your finances wisely and are in debt, you can reduce stress and improve your cash flow each month by considering a debt consolidation mortgage.

Who qualifies for debt consolidation mortgages?

In order to qualify, you must have:

  • A near-perfect credit rating
  • Regular income
  • Manageable monthly expenses

Therefore, timing is everything.

When should I consider a debt consolidation mortgage?

Debt consolidation is considered the last resort to get a handle on debt. Therefore, it should be arranged in the early stages of debt before you begin missing payments and your credit score suffers severely. Timing for a debt consolidation loan also has to do with the amount you owe. If it gets too high, you won’t be able to qualify for a debt consolidation mortgage in some cases, as the amount of money required will be too great in relation to how much money you can secure.

Why choose debt consolidation mortgages over other loans?

Your home is your biggest asset, providing collateral needed to apply for debt consolidation. This type of loan is much like a second mortgage, as you leverage the equity built in your home towards your loan while also showing that your home can cover the costs should you default on repayment. Lenders will see that you pose less risk, allowing you to secure the loan and a lower interest rate.

How does debt consolidation work?

As mentioned, debt consolidation provides you with a single lump sum of money used to pay off your entire debt. This works across all loans and credit cards. You apply for a loan, and then that loan is transferred directly to your creditors. You then begin paying one monthly fee at a lower rate of interest than the majority of the balances you had. As a result, your budget becomes more manageable, and you pay the consolidated loan off faster as interest isn’t building up as much. Thus, you are paying more to the principal (the amount you borrowed) instead of the interest that builds up day after day. You also pay the same amount every month, allowing you to manage your finances more easily. In most cases, you will have more money left over at the end of each month, which can go towards savings or purchases without the need for credit.

What are the pros of debt consolidation?

A debt consolidation mortgage allows you to:

  • Simplify your payments into one manageable payment each month
  • Secure lower interest rates thanks to your home acting as collateral
  • Pay down debt faster thanks to lower interest rates
  • Protect and even improve your credit score
  • Often improve cash available each month

What are the cons of debt consolidation?

There are some cons to consider, including:

  • You could be at risk of incurring further debt if you continue to use credit instead of cash for purchases
  • If you don’t follow the payment plan, you could be at risk of losing your home
  • There might be high processing fees

Is debt consolidation right for you?

So, how do you know if this is the right solution for you? As mentioned above, there are both pros and cons to this type of mortgage. For the most part, if you are sincere in your desire to pay down debt and restore good budgeting habits, this is by far one of the most effective ways to do so. However, if you know in reality that this might lead to you spending more and falling back into old habits, it won’t get the results you desire. If you are really on the brink of a financial crisis and struggle to pay your bills, then you require something more drastic such as a debt repayment plan with a credit counsellor.

How to Succeed with a Debt Consolidation Mortgage

Tips to make the most of your debt consolidation mortgage include:

  • Be certain to make your monthly payments on time every month
  • Instead of spending any money saved from the payment plan, create a tax-free savings account and keep it for a rainy day
  • Stop using credit cards to avoid building more debt

These tips will help keep your finances in order and your debt down to a minimum.
Mortgages, Mortgages can help you apply for debt consolidation with a variety of lenders available to provide a debt consolidation plan with the lowest possible interest rate. Speak to our team today.

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