Fall Cleaning Your Debt Could Save You Thousands

I feel as though fall is here. The early mornings tell me so. They are cool and crisp, and as with any season change in Canada, I go from wearing several layers in the morning to wearing shorts in the afternoon.

There are two times in the year that I love to declutter and clear out my house: spring and fall.

Wouldn’t fall cleaning be so much more gratifying if – somewhere under dusty boxes and outgrown hockey skates – you found an envelope with, say, $5,000 in cash? Wouldn’t that make fall cleaning worthwhile? Of course, it would!

You may not uncover a financial windfall when cleaning the garage this fall, but a little time and attention to cleaning your financial house can be very rewarding. Dust away the cobwebs this fall, and look at your debt servicing costs.

As your local mortgage broker in Kamloops, I ask a few questions to help you clean your financial house. Are you continuously carrying a large monthly balance on your credit cards? Are you constantly having a large balance on your line of credit? Do your monthly debt commitments make it hard to balance your budget? Take some comfort in knowing that you’re not alone. However, this kind of financial clutter – ongoing, unsecured consumer debt – is confusing and costly. Guess what? It’s time to clean up your debt!

Begin by making a quick list of the interest you are charged on your loans, credit cards or other unsecured debts. What are you paying in debt servicing costs? Do you have tax bills piling up? Don’t forget to include that debt in your fall cleaning project.

Next, make an appointment with me, your mortgage broker in Kamloops,  to review your situation. You have a golden opportunity right now to give yourself a tremendous financial boost. By rolling your other debt into a new or existing mortgage, you can reduce the number of payments you make each month, save on interest costs, be mortgage-free quicker, and significantly improve your cash flow. Most of all, you’ll be able to start building wealth. 

Are you worried about penalties? Do you think it can’t make much of a difference? Think again. It can be as good – or better – than finding the $5,000 cash envelope in your garage. Why? For example, assume you have a $175,000 mortgage at 3.5%, high-interest credit cards and other loans of $50,000, and a total monthly payment of $2,024. Now, if you took that $225,000 and added on an approximate $8,000 penalty to refinance your mortgage, you could roll that $233,000 into a 5.89% mortgage (OAC, rates subject to change) that would reduce your overall monthly payment to $1,399. That’s a monthly savings of $625. Your monthly payment has been reduced, you’re saving on interest charges, and all your high-interest credit card debts are gone. Imagine funnelling cash flow back into your mortgage or investing in RRSPs, TFSAs, or RRSPs!

Carrying a lot of debt, especially high credit card debt, hurts your credit score and ability to get approved for new credit cards, loans, and an increased credit limit. Even if your debt-to-income ratio is low, your debt hurts your credit score. You could still be denied. (Note that your income isn’t a factor in your credit score.) Check out this great article on “Improving Your Credit Score” by the Government of Canada.

Regardless of where you are in the life of your mortgage, if you have equity in your home and your cash flow has slowed to a trickle because of your debt, talk to a mortgage professional who can analyze your situation and outline your fall cleaning options.

So, as you polish the windows, shake out the carpets and clear out the garage, don’t forget the most rewarding task: cleaning out your debt. Your financial house will enjoy a fresh beginning too!

Are you feeling overwhelmed by your current debt load? Let’s talk!