So you want to lower your high interest debt, eh?
There are a few ways you can achieve this. First off, most of the time you will need to leverage your loan debt consolidation loan with some kind of security. Suppose you have a set of loans such as loans for furniture, a car and other assets, then you loans are secured by the items you have purchased with your loans. However, if you have a lot of credit card debt then unfortunately your loan is not secured and so consolidating your debt will require some sort of creativity.
Let’s discuss the different methods you can use to consolidate your debt:
1. If your small loans are secured by assets, you can go to a debt consolidation lender (a bank, for example) or a mortgage broker to find you the right consolidation solution.
2. If your loans are unsecured but own or are buying a home you can use your home equity to lower your monthly debt payments as follows:
- First mortgage: you can consolidate your smaller debt with your mortgage loan. Suppose you are currently financing your car for a 5 year term at a rate of 8%, you can pay off your car loan with your mortgage loan. Your car loan would be grouped with your mortgage loan, and you benefit from a low interest rate. Seeing as how mortgage rates are falling in Canada, this is a great solution for first time home buyers! Currently 5 year fixed mortgage rates are sitting at around 3%.
- Second mortgage: if you already have your first mortgage then you can consolidate your debt by getting a second mortgage from a second mortgage lender (usually a private lender). You will see the same benefits that you would receive from a first mortgage: namely, lower interest rates and lower monthly payments.
- Home Equity Line of Credit (HELOC): home equity loans are handed out with low interest rates due to the fact that they are secured by property. You can get a line of credit to pay off your high interest debt quite fast and easily from the time you apply.
Another way to consolidate your debt is to apply for debt consolidation services. You can apply for debt counselling services where your debt and its associated interest rates are negotiated down with your creditors. With a lower interest rate and lower repayment amount you will see your monthly payments drop. This is a great alternative to the options listed above.
Speak with a debt specialist from Loans Canada to see what debt consolidation services are most appropriate for your situation.