Reducing Consumer Debt In 2012
“Using Mortgage Financing To Reduce Overall Consumer Debt In 2012”
We are now closing in on one year since the mortgage rules have been tightened up for insured mortgages.
With regular news reports on the high levels of consumer debt in Canada, there has even been some talk about further tightening of mortgage regulations.
While its hard to imagine further changes to mortgage rules at this point, it is somewhat surprising to read news reports that make claims that Canadian consumer debt is higher than American or British consumer debt levels.
Of course we have to take all these reports with a grain of salt as virtually all are done through some sort of survey for which the related accuracy or inaccuracy can be roundly debated.
Regardless of which country’s debt load per capita is higher, the fact remains that the average Canadian is carrying a high debt load and is having trouble getting it paid down.
Reducing debt load is all about paying down the principal loan or debt amount outstanding.
Being that most people are not likely going to be able to suddenly increase the amount of money they make each and every month, the debt reduction exercise has to turn to putting more of the available dollars towards principal reduction.
This is primarily done in two ways.
The first most obvious way is to reduce discretionary spending and put those dollars against debt balances outstanding.
The second most potentially impactful way to reduce debt is through reducing the cost of capital on the debt that is outstanding.
The keys to reducing the cost of capital on debt is to access cheaper forms of capital by leveraging assets that can be pledged for security and your personal credit score.
This is where mortgage financing comes into a play in a major fashion for those that have equity in real estate.
Consumer debt is in many cases unsecured debt which not only tends to provide higher and higher interest rates over time, but also has a negative impact on your credit score when you are utilizing a high percentage of available credit.
And most of the debt or credit that impacts your credit report is unsecured and/or revolving forms of credit, not mortgage credit.
So when you are able to pay down the sources of credit through mortgage financing or mortgage refinancing, you can potentially access cheaper capital through mortgage financing and have your credit score improve through lower credit utilization of the sources of credit that are tracked by the credit bureaus. This will in turn lead to lower cost secured and unsecured consumer debt.
As I stated at the outset, a lower overall cost of capital allows more of your monthly cash to be available for debt pay down.
While this is not going to be a solution for everyone with high consumer debt, for those that have equity in real estate, there is no time like the present to see if you can devise a debt reduction strategy through greater leverage of mortgage financing.
The best way to determine what options are available to you and how to go about taking advantage of them is to work directly with a Toronto Mortgage Broker who has the experience and lender sources required to make this approach work.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel