New Year's Resolution: Pay off Credit Card Debt and Start Saving

January 4, 2017 | Posted by: Alison MacKenzie

 Most Canadians suffer with their highest personal debt load in January, when the “holiday hit” arrives and your credit card statements let you know just how much you spent on the festive season. It’s especially hard if you already had a burgeoning debt load before the holidays.

This year, make the best New Year’s resolution ever: resolve to clear that debt, and start building wealth. With the right plan in place, this year could be the beginning of a strong new financial life. Start now, and every month you could be seeing the difference: a boost to your monthly cash flow, one easy payment, faster debt paydown, and potentially thousands of dollars in interest savings.

If you have enough equity in your home (you can’t refinance a mortgage above an 80 per cent loan to value), I can show you how to use that equity to consolidate your high-interest debt into a new or existing mortgage. In almost every case, you’re better off rolling large amounts of high-interest debt into a mortgage. Why? Because we are benefiting from mortgage rates that continue to be among the lowest in decades. Just compare mortgage rates with what you’re paying on your credit cards and other debts.

First I’ll do an assessment of your situation. Here’s an example – mortgage, car loan and credit cards total $225,000. Roll that debt into a new $233,000 mortgage, including a fee to break the existing mortgage, and look at the payoff:

 

                                                                        Current                           NEW

                                           Today       Monthly Payments*     Monthly Payment*

Mortgage                          $175,000                $874                               $1,054

Car loan                            $ 25,000                $495                               $       0

All credit cards                 $ 25,000                $655                               $       0

Total                                                            $2,024                              $1,054

 

That’s $970 less each month! Now decide how to use that $970. If you put $500 into your mortgage payment, you’ll reduce your amortization from 25 years to 15. Or you could invest in RRSPs or RESPs and reap some tax benefits.

It’s a new year. Make it the start of a new financial life. I’d love to help you crunch some numbers to see what kind of life you could be living, something to really celebrate about next New Year’s Eve!

 

 

*3.5% current mortgage, 2.59% new mortgage, 25 year am. Credit cards 19.5% and car loan 7%, both at 5 year am. OAC. Subject to change. For illustration purposes only.

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