Paying down, and off, debt is a priority in everyone’s life.  Every family and individual should have a written household budget.  There are plenty of these online to be had.  If you don’t have one or would like me to send you one, please email me and I will do so.

By paying off one debt, and using the previously budgeted payment towards another, as yet unpaid debt, you can create a debt snowball.  With each successive credit card/loan paid off, the disposable income increases and a larger payment can be applied to the next debt.  With careful and disciplined budgeting, your disposable income increases each year, with more that can be applied to:  paying off you mortgage, savings, and investing!

By staying disciplined to your budget, you can be confident of the timelines associated with your debts being paid off.  When coupled with a debt restructuring, you can accelerate your debt repayment, paying them off that much faster!!

One always has to approach debt restructuring carefully, but coupled with a disciplined budget, it has the potential of increasing cash flow immediately and eliminating debt more rapidly.  Always only consider it in conjunction with a carefully planned budget.  Here’s an example:

 

Loan Type	Interest Rate	Balance	Monthly Payment
Credit card 1	28.8%	$3,000	$90
Credit card 2	18.9%	$2,000	$60
Credit card 3	8%	$5,000	$150
Bank Line of Credit	8%	$10,000	$200
Car Loan	8%	$30,000	$606
Mortgage	3.09%	$550,000	$2,628.32
Total		$600,000	$3,734.32

Now, let’s say you did a refinance for today’s conventional uninsured rate of 3.59% (don’t confuse the refinance rates with high ratio rates of 3.14, etc. – you can only use those lower rates for high ratio purchases and for insurable/insured switches).

With a new mortgage of $600,000 at $3024.19/month on a 25 year amortization (higher amortizations available as well, but we want to pay this off asap J), if we applied the surplus $741.86/month to make the payment $3,766.05 again, the balance on the new mortgage would be almost $1,111 lower than 5 years at 3.09%!  Plus the amortization would be reduced to 18 years!

 

	$550,000 at 3.09%	$600,000 at 3.59% with extra $741.86/month applied
	$470,920 after 5 years	$469,809 after 5 years
Other Consumer Debt After 5 Years	$50,000 minus minimum payments over 5 years.	0

I did not go to the trouble of amortizing each consumer debt, but making minimum monthly payments on all of these, but, well, you get the picture (kind of like walking up a down escalator).

As you can see, a careful debt restructuring program can benefit your long-term plans.  Contact me today for a no-obligation consultation at 1.877.336.3545 or DonnaL@dominionlending.ca.

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