Ever feel like your debt load is not changing? You’re paying nothing but bills and having a hard time saving for retirement or making extra payments to pay off things quicker.
Here is a scenario for you to consider:
Line of Credit with a balance of $20,000 and 6% interest rate. Payments due are 3% of the balance. If you don’t use it at all and just work to pay it off, you will pay $3,965.55 in interest and it will take you 16 years and 7 months to pay off
Credit Card with a balance of $10,000 and 18% interest rate. You make a payment of $300 per month. You don’t continue to use card and work to pay off, you will pay $9,798.90 in interest and it will take you 17 years to pay off.
Reading these scenarios and seeing the amount of time and interest it will take to pay these debts off is scary. And to be honest, most people continue using their lines of credit or credit cards while making payments so even more interest is paid and they may never get paid off. Plus on top of these you may have a car payment or mortgage payment. Figuring out where to put your money and work to pay off what debt is also a hard problem many people face. If you have enough equity in your home it may be worth it to see if you could consolidate all your high interest debt into your mortgage.
For example based on the scenarios above if you can add the $30,000 of debt into a mortgage and have it paid off in 5 years you will only pay $2,241 in interest and your payment on it would be $537.37/month. This will also increase your monthly cash flow, so you can work to pay off the mortgage quicker, invest it in RRSP’s or a TFSA.
For information on your scenario call your Prince George Mortgage Broker’s
Michelle Mohr (250) 649-8159 or Jamie Cunningham (250) 552-4727 anytime.