News reports continue to be circulated as to how the levels of Canadian consumer debt are not going down and some even go so far as to say that the average level of Canadian consumer debt is higher than American or British consumer debt.
While I have a hard time believing the consumer debt comparisons among Canada, the U.S., and Great Britain, I do acknowledge that the average consumer debt in Canada is likely higher than it should be and that our current level of average consumer debt places a lot of financial risk on a large number of Canadians as well as the overall Canadian economy.
And while there have been many Canadians who have taken advantage of mortgage financing and/or mortgage refinancing to try and get their consumer debt reduced, there are still may Canadian’s who could be getting greater benefit out of mortgage financing to assist in reducing their overall debt load.
That being said, let’s make it clear that there is no magic bullet to reduce consumer debt outside of some type of debt write off by a lender which is going to have credit rating repercussions to any borrower receiving this benefit.
Any financing strategy to try and reduce consumer debt is likely going to require some changes in spending habits, some improved budgeting, and a more informed understanding of how personal credit markets work and can work to your advantage.
Assuming that there is a willingness to get better at managing personal financing, any consumer that has sufficient equity in a real estate property has the potential to improve their overall debt reduction strategy.
Here are just a few ways where mortgage financing or mortgage refinancing can be of benefit to reduce consumer debt.
First, and most obvious, is the fact that mortgage financing, because it is a secured form of financing, is lower cost on average than any other available sources of longer term financing out there.
So if you have the ability to borrower more against your personal property, then there is a good chance you can reduce your overall cost of capital, allowing more of your available cash to be used to reduce debt instead of make interest payments.
Second, a part of accessing lower cost forms of capital is going to depend on your personal credit score.
When you have higher levels of consumer credit in the form of lines of credit and credit cards, high levels of available credit utilization will reduce your credit score, making it harder to access the lower cost sources of financing.
When you have the ability to pay down the types of debts that are most impactful on your credit score, your credit score can rise rather quickly, providing you with greater ability to secure cheaper forms of capital in the future, which will reduce the amount you are paying to interest and increasing the amount available to pay down principal.
Once again, this will not happen without some improvements in spending discipline as what benefits that can be gain can just as quickly be lost through the very spending practices that created the high consumer debt load in the first place.
Every consumer debt scenario is going to be unique to some degree, so the best way to determine what if any mortgage financing or mortgage refinancing options may be available to you to assist with consumer debt reduction is to work with an experienced mortgage broker with a track record of helping their customers with consumer debt reduction strategies.