If you find yourself paying the minimum on your credit cards, or just a little more, most of your payment is going to cover the high interest rates associated with the debt. This means that it often takes two or three times as long to pay off the debts as it would if you were just able to pay the principal.
But what if you could change that interest rate from, say, 18 percent to 2 or 3 percent on that debt? What if you could roll that debt into your mortgage and make it part of a long-term loan? There are many reasons to take a look at this alternative to your debt management.
1. You’ll pay less money over time.
If your credit card debt is in the high four or low five figures, rolling it into a mortgage renewal or refinance is a smart idea. That large minimum you’re paying into your credit card each month, while your new mortgage payment will only go up by a comparatively small amount. Because you’re looking at a 30-year amortization, depending on the amount of debt you have, this could end up saving you a considerable amount over time. If you are able to start paying more than your minimum monthly mortgage payment, the extra goes straight to principal, which means that you’re knocking your debt out dollar for dollar, instead of having to deal with more interest.
2. Your credit score will improve.
A part of your credit score comes from the percentage of your credit card balances that you have in use. If you have a $5,000 limit on a credit card, but your balance is over 50 percent of that (so $2,500), your credit score takes a hit. Consolidating that into a mortgage renewal means that your credit card balances go down to zero. If you can resist the temptation to take those credit cards out now that they are paid down, that will continue to benefit your credit score. Also, while your mortgage balance will go up somewhat, as long as you keep making your mortgage payments on time, you will get that positive effect on your score.
3. Your sense of financial panic will go away.
If all of your credit cards are maxed out, or close to it, and you’re just making minimums each month, your life develops a great deal of stress. If your car breaks down, or if your refrigerator conks out, you don’t have any emergency credit on hand to take care of that immediately. This is where having credit requires a great deal of discipline. Just because you have a zero balance on your card doesn’t mean that you have to use any of it. You’ll want to review your card agreement and see if there is a minimum use fee on a monthly, quarterly or annual basis, but if you don’t have to use your card, put it in a drawer and only get it out when there is a true emergency. You’ll feel better about your financial picture, and you will be a happier person.
If you’re ready to talk about debt consolidation in your mortgage refinance or renewal, give us a call today! We have helped hundreds of clients in the Vancouver area improve their financial situations, and we look forward to working with you.