Holiday debt happens

Now that the holidays are over, you want to travel. You find your Instagram feed filled with exciting pictures of new and exotic places. Unfortunately, ensuring what was already a desire becomes an obsession. But how can you join the ranks of your friends and colleagues traveling across the world when Christmas puts you in debt? This is the time of year we feel the pressure of unexpected holiday debt.

The holidays are a good time of year for many reasons. However, the family meals, gifts and, for some, traveling home for the holidays creates financial stress that lasts well into the new year. If this sounds familiar, you are not alone. It isn’t surprising that Canadians are facing crippling consumer debt when 14.9 per cent of the average Canadian household income goes towards debt payments, and we owe $1.79 for every dollar. This is a steep incline from the $1.67 owed per dollar in 2017.

Consumer debt is growing

These statistics are unsettling, but quite unfortunately unsurprising. It is all too common to apply for credit cards with nothing but the best of intentions. Unfortunately, somewhere along the way you begin to use them for necessities. Consumer debt is felt worse after the holidays due to decreased hours, gifts (including those from our jolly white-bearded friend!) and social obligations that are at best hard to back out of, including that iconic family dinner. Your intention was to pay it back once the holiday was over. But, now you are forced to choose between paying your holiday debt or your bills such as rent or groceries. It is very hard, but there is hope.

Debt consolidation may provide you with the relief you need. A debt consolidation loan is a single loan that is used to pay off your outstanding unsecured debt, including your holiday debt. There are many options to review when considering a debt consolidation loan. Most banks offer them, and there are some independent money lenders who offer such services. If you receive a loan from your primary bank, you may be able to get lower interest rates and negotiate terms that work for you. 

Advantages of debt consolidation

Debt consolidation loans have many advantages. Once approved, you will make one monthly payment with a lower interest rate. Another advantage is that a debt consolidation loan is treated like any other loan on your credit score. This means it is far better than making minimum payments on your several credit cards. It is also much more manageable. In a few years, the debts tied to your consolidation loans can be completely paid off.

However, just like any other financial decision you make, you must research your options thoroughly before deciding on one. Your personal bank is one option, but it’s not the best for everyone. Your bank may also require collateral or a co-signer depending on your credit score. This is why it is so important to research all of your options thoroughly. Another bank or an independent lender might be better depending on your personal situation. You especially want to be careful when approaching independent money lenders. These lenders may be more likely to accept your application, but interest rates can go up to as high as 35 per cent, thus making your desire to simplify your finances and free up some cash impossible.

How a mortgage broker can help

Emphasizing the importance of exercising caution is not an attempt to discourage you from applying for a debt consolidation loan. Rather, it is to encourage you to find the right consolidation loan for you. After all, we want to make your life easier rather than harder, and the right lender will do this for you. Once you have done all the necessary research, you can reap the benefits of earning your financial freedom with one easy monthly payment at a time without the fear of destroying your credit score.

If you have built equity in your home, you may be able to roll some or all of this debt into your mortgage. Your mortgage broker can help you review the options and make suggestions that will improve your financial wellbeing in 2020. If you’re considering purchasing a home in 2020, an unbiased mortgage professional can help. A mortgage broker will help you get your finances in order to make sure you’re approved for a mortgage.

To recap

The benefits of debt consolidation start with having one payment a month to one lender. The interest rates can often be lower than that of your credit cards. Additionally, the loan won’t hurt your credit score so long as you make your payments on time. This can also help you free up some extra cash every month to do with as you please.

The disadvantages of this approach are that some lenders will require collateral or a co-signer. A lower interest rate is not always guaranteed.  Additionally, some lenders will try to loan much more than your initial debt to increase their profits. Many of the disadvantages can be negated or minimized depending on your situation. Your mortgage professional can help you assess these options and may be able to help you consolidate your debt into your mortgage or recommend products that guide you towards your first home purchase.

Now that you have reduced your monthly payments to one and you’ve freed up some much-needed cash, all you have to do is start your travel-fund and perhaps pick up a couple of language dictionaries! Holiday debt isn’t a life sentence! Once you have your cash set aside you can be that friend or colleague gallivanting across the globe and you can finally cross at least one of those fun exotic places off your bucket list!

If you’d like some more help with your mortgage and to learn more about how a mortgage broker can help you with debt consolidation, you can get in touch with me here!