Smart Strategies for Debt Consolidation

This time of year can be a difficult time financially for many Canadians – and with the economic impacts of COVID-19 still affecting many people, you may find yourself with a lot of high-interest debt. It can feel like there is no way out.

Debt consolidation can be a good solution if you are looking to get out of debt. It means that you’ll be consolidating all of your high-interest debt payments into one convenient payment while also saving a significant amount of money on interest. It could save you thousands of dollars and potentially help you pay off your debt years sooner.

In this article, we will cover some smart strategies for consolidating debt.

Second Mortgage

If you have equity in your home, you can borrow against this equity in order to pay off your other debts. One way to do this is through a second mortgage. A second mortgage is a “second” or “additional” loan against your home. It does not require you to break your current mortgage. Because a second mortgage is considered higher risk than a first mortgage, the interest rate will be a little higher – but still much lower than other forms of high-interest debt.

Refinancing

Refinancing is another way that you can borrow from your home equity in order to consolidate debt. This method does require you to break your first mortgage and because of this, there will be a financial penalty to do so. The interest you pay on a refinanced mortgage, however, will be lower than the interest that you will pay on a second mortgage The choice of whether to get a second mortgage or to refinance generally depends on how close you are to your renewal date. If you are close, then refinancing is usually best and if your renewal date is still a way off, then getting a second mortgage is usually best. Your mortgage broker can run some calculations to see which option makes the most sense for you.

Unsecured Loan

If you are not a homeowner – or if you do not have enough equity in your home to pay off your debts – a third option for consolidation is an unsecured loan. This is a personal loan that rolls your high-interest debts into one easier to manage monthly payment.

Contact 1Onefund Financial today

Are you considering a second mortgage, refinancing, or an unsecured loan to help you consolidate your debts? If so, we can help. Contact us today to speak to one of our agents.