Dear David: Our mortgage payments are killing us. Our home is worth about $500 thousand, we currently have a $100 thousand mortgage and another $100 thousand in consumer debt. With $2,500 in monthly bills on top of our mortgage payments, we are barely keeping our heads above water. What can we do? – SINKING FAST
DEAR SINKING: You are not alone. Over the years, things come up in people’s lives that can easily sidetrack their finances. One bad investment, a family crisis, or even a vacation is sometimes all it takes for things to go off the rails.
Depending on your circumstances, this could be one of those rare occasions where I suggest refinancing. While I hate the idea of biting into your hard-earned equity, the long-term outlook could work out in your favour.
If you live in Waterloo Region, you’ve hit the jackpot in the last few years, as home values have more or less doubled. You’ll want to speak to your mortgage specialist about your options, but with the amount of equity you have, you may be able to combine the payments for your $100 thousand mortgage and additional $100 thousand in consumer debt. A combined payment would likely cost you less than $1000 per month, and used wisely, these savings could get you back on track in short order. Paying off your consumer debt would change your financial outlook dramatically, and may allow you to start saving for RRSPs and other long-term investments.
Moving forward, you need to be extremely disciplined when it comes to consumer debt. Whether the credit card habit is yours, your spouse’s, or the product of circumstance, it’s time to plug that leak in the system and perhaps consider credit counselling. I’m not saying you should cut up your credit cards (since you’ll need them to maintain your credit rating) but it’s essential that you only spend what you can absolutely afford to pay off each month. If you’re only making the minimum payments on your credit cards, the balance could take a lifetime to pay off, and the long-term impact of impulse or non-essential purchases may be more devastating than you realize.
Once you’re out of the woods, be careful not to take this path again. By not giving the credit card companies a nickel in interest, you’ll reclaim a healthly portion of financial freedom and also sleep better at night.
PRO TIP: When it comes to your finances, seek professional help. The path back to financial freedom may be more straightforward than you realize. Talk to your mortgage specialist about your current mortgage payment schedule. When you’re back on track, it’s important to live within your means, and ideally, it’s even better to live under them. #AskDavid #Advice
David is obsessed with client success and helping people get the most from their largest investment. Moving? Get it right. Ask David. Call or text 519-577-1212.
