Credit Card Debt vs Refinancing- the Naked Truth

  Holiday season is well behind and all we have left with us is found memories and those dreaded credit card bills. Most of us have been in the situation where our spending, especially during the holiday season, exceeded our ability to repay. There are also unexpected things in life, whether joyful or not so that we did not forecast or account for. At the end of this, we are stuck with a huge credit card bill. If you consider making only the minimum payments, without spending a penny more, it will take you up to 20 years to repay. Ouch! Banks and credit card companies know that and for these financial institutions credit cards provide an excellent investment and exceptional ROI. The unfortunate thing is that you, as a consumer, is stuck paying anywhere between 18-21% per year in interest. Here is another item, that most people would overlook that potentially can cost you much more at the end: Your Credit Score. Your credit cards are maxed out (80% and above the limit), your credit score goes down. Miss a payment, your credit score goes down. If you hold your credit balances long enough you will find yourself in the situation where obtaining or even renewing your mortgage will become a challenge. One of the most common suggestions is debt consolidation. For people that do not own a property a consolidation loan from a bank with much more favourable interest rates is a great solution. In this article, we will concentrate on property refinancing. There are several items to consider. Cost is being a prime issue. What does it cost to refinance. Almost always: legal fees $1,200-$1,500 as new charge must be registered. In some instances property evaluation fees: $200-$300 on average. There are also bank discharge fees ($250). The main cost issue to consider - early withdrawal penalty if your existing mortgage is being replaced with another mortgage. A good mortgage broker will analyse your options and will come-up with a solution that will be favorable in your situation. For example: You currently owe a property with enough equity for refinancing. You existing mortgage is better than prime variable mortgage and your monthly payments are 1,500. Your credit card bills are totalling 20,000 with 18% interest rate per year. Your cost of borrowing will be: Legal Fees $1500 Appraisal Fee $300 Discharge $250 Bank Penalty $4000 (3 month interest) Interest on 20K Mortgage =480/year (calculate at 2.4% APR) Total: $7030 Credit card cost /year = $3,600 Conclusion: If you are unable to re-pay your credit card debt in 2 years or less, mortgage refinancing is the way to go. In most instances, refinancing also makes sense to provide you with an extra cash-flow. This is achieved by amortising your debt over 25 year time period. For more information, please call (778)881-0276 to discuss.