Posted by: Vince Gaetano
For many, the first month of the year carries with it the extra burden of trying to figure out how you are going to pay off those credit card bills that you built up over the holidays.
Picture this visual:
You currently have five buckets, each representing your various debt.
One of them is your mortgage. You own a property worth $500,000 and you have a mortgage of $200,000, the interest rate for this bucket (your mortgage) is around 3%.
The other four buckets are your various credit cards and lines of credit which have an average interest rate of approximately 20%. The total debt in these four buckets is $50,000.
Your goal is to consolidate your 5 “debt buckets” into one, the one with the lowest interest rate, which in this example is your mortgage bucket.
Here is a quick breakdown that shows how much money you can save eliminating your debt by calculating ONLY interest payments – not the reduction in your mortgage principal (the latter being an added bonus).
By consolidating your debts you would now pay $7,500 a year instead of $16,000. That is a savings of $8,500 over the year or over $700 per month.
Here are some simple debt consolidation steps to follow so that you can start contributing money to your bottom line today and NOT your bank’s:
Understand Your Credit (this is what determines your rate of interest for your mortgage)
First, obtain your credit rating report and understand how much credit you have available to you and make sure your balances are accurate. If there are some credit lines that are not used, contact the credit granter and cancel it.
Secondly, look at the interest rates charged on your respective credit card rates (this will determine the difference or money you will be saving)
It was a great idea getting that Toronto Maple Leaf blanket at the ACC when applying for a MasterCard but how good a deal was it now that you are paying 19.99% in interest on your $2,500 balance compounded monthly? Would you pay over $500 for the Leaf blanket now?
Total your credit card debts and the respective monthly payments to find out what your obligations monthly are to these credit cards/line of credits
Your credit cards, retail store cards and lines of credit have interest rates between 14%-24%, some are even higher than that. Ask yourself as to why you would pay 20% interest rates when you can consolidate your credit card debt that you built up over the holidays into one monthly mortgage payment and get out of debt much faster!
Most people can if you have equity in your home. MonsterMortgage.ca even has access to a lender that will cover the cost of your legal payment when refinancing your mortgage so that you can save even more money.
Treat yourself to a post holiday present this year, the math is simple!! By following these simple steps you can save hundreds if not thousands of dollars every month and become debt free a lot faster.