How Can I Pay Off Multiple Debts?

How Can I Pay Off Multiple Debts?

There are undoubtedly many financially related concerns in life. Every day we juggle competing priorities and make decisions concerning money. Some of these decisions are small and have very little impact on the overall household budget. Others are larger in scale and can even have long-term economic consequences if the best choices are not made.

Handling multiple household debts is one such larger financial issue. Any decision that you make today to try to pay down this debt or any new debt you wish to take on can have the potential to hold long-term economic effects either positive or negative.

If you choose to look into options that will best pay down your debt over time then the economic impact can be quite favorable. The less debt that you need to contend with, the more money you will have to pay down your mortgage, pay all household expenses and housing costs as well as enable you to even put some money aside for a rainy day.

The problem that many homeowners often face, however, is the sheer number of debt payments that they are obliged to pay monthly. These debts are on top of the substantial housing costs and the monthly mortgage payments that must be made to keep the mortgage in good standing. 

According to Statistics Canada, consumer insolvencies rose 17% across the country during 2020 and into the first quarter of 2021 rising 15% in Ontario. In total, by year-end, there were a total of 7,658 consumer insolvency filings. 

Throughout the Covid-19 pandemic, household payments have not gone away although many have been forced to work for reduced pay, reduced hours, or have been temporarily laid off. Some sectors have been harder hit than others. 

For those homeowners that may work in the service sector, many jobs have disappeared altogether and those associated with small businesses have struggled to keep the doors open with repeated lockdowns and stay-at-home orders, greatly reducing business productivity. Unfortunately, creditors are not necessarily sympathetic to temporary financial hardship.

Debt Consolidation- One Payment with Lower Interest

To help avoid the monthly mortgage falling into arrears, many homeowners may be forced to pay only the minimum payments on other monthly debt payment obligations. Even worse, it may become impossible to reliably pay all the debt payments while making sure to keep on top of the monthly mortgage payments.

Now may be the time to consider the option of debt consolidation. What exactly is debt consolidation? In simple terms, debt consolidation is the method of merging several different debts into one loan.

Instead of paying multiple debt payments with competing interest rates, a debt consolidation loan enables a homeowner to pay one monthly payment with a lower overall interest (especially when compared with the high interest charged on most credit cards which sometimes exceed 20% annual interest rates.)

Although there are different loans available that will enable an individual to consolidate outstanding debt, a homeowner is in the unique position of being able to access existing equity in their home to take out several second mortgage options to help consolidate debt. Interest rates associated with most debt consolidation loans will be lower. 

With most private second mortgage options the interest rate will typically fall between 7% to 12%. Fees will be manageable, ranging from typically 3% to 6% of the total cost of the second mortgage option.

Debt Consolidation Loan Options Using Home Equity

What if you have poor credit? While taking out a debt consolidation loan may be difficult through a bank, a homeowner with poor credit will be able to take out a private second mortgage option to help limit debt payments to one monthly payment. 

Many well-established private lenders in Ontario will be able to negotiate different debt consolidation loan options despite poor credit. Private lenders will loan out second mortgage options on criteria beyond simply credit and income. Several secured mortgage options can provide the money to pay off existing debt and consolidate all debts into one payment using your house to secure the mortgage loan. 

Types of Mortgage Loans To Help Consolidate Monthly Payments

If credit is exemplary, banks will be able to negotiate different debt consolidation loan options. For those with low credit scores, private mortgage loans include home equity loans or a second mortgage. A debt consolidation loan can also be negotiated.

What private mortgage options have in common is that the appraised value of your home, the Loan-to-Value, as well as the degree of existing equity, will be utilized to negotiate the specific mortgage amount. Private lenders will lend up to a 75% LTV (75% of the appraised value of your home) and will look for at least $70,000 in existing equity in your home.

Debt consolidation private mortgage loan options also are short-term loans. The time funds are lent out tends to be between 1 to 3 years. These private mortgages are also processed quickly and tend to be very straightforward to negotiate. 

The banks may take up to several weeks to provide financing to help consolidate debt payments. Private lenders should be able to negotiate debt consolidation loan options in as little as 1 to 3 days.

Key Reasons to Consider Debt Consolidation Loan Options

Multiple Monthly Debt Payments– If an Ontario homeowner has too many high-interest debts to pay off monthly such as credit cards which can have up to 20% interest rates attached then consolidating these payments into one payment with a significantly lower interest rate is preferable.

Sufficient Home Equity – If an Ontario homeowner has built up considerable equity in their home, it is a good option to utilize this equity to pay off higher interest debt

If the Mortgage may be at risk of falling into Arrears– Taking out a private consolidation loan is a very good option to provide the funds to cover the monthly mortgage payments and cover household debts under one payment securing a loan against your home.

Potential Downfalls to Taking Out A Debt Consolidation Loan?

  • Late payments can negatively affect your credit score.
  • Inability to make your monthly consolidation loan payments may result in losing your property as the loan is leveraged against it. 
  • You may be required to use other assets in addition to your home as collateral for a low interest rate.

Mortgage Broker Store Can Help You with Consolidation Options

Don’t let debts get on top of you. Explore the mortgage options that will enable you to reduce the number of monthly debt payments by utilizing the equity in your home. At Mortgage Broker Store, we access a broad network of well-established and experienced private lenders who can advise you on the best debt consolidation options open to you despite credit issues. Contact us at your convenience to set a time to discuss your unique financial goals.

About Jonathan Alphonso

Mortgage Agent, Web Developer, and Real Estate Investor. Together with Ronald Alphonso I run MortgageBrokerStore.com. I write about a variety of topics on Canadian mortgages and real estate. Our particular specialty is dealing with Ontario power of sale and foreclosure situations.

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