Controlling Your Debt to Save You Money

In 2018, the Bank of Canada reported that the average debt per Canadian household had reached 170% of the household’s disposable income. This means that for every dollar earned in that household, another dollar seventy is owed somewhere. It goes on to estimate that around 8% of households are at the 350% mark. When every dollar you earn has to pay off at least three more in debt, what are your prospects of ever being debt-free?

When citizens take up multiple lines of credit and accumulate multiple pools of debt that exceed their ability to pay, it becomes a question of firefighting the problem. You only have finite funds, so some debts go unpaid, incurring penalties that compound the core issue; the debt is too great and the structure of the debt unforgiving.

While some citizens will eventually file for bankruptcy, this can have long term restrictive effects that can be as bad as carrying the debt. An alternative option is restructuring the debt through consolidation.

How Does Debt Consolidation Work

Debt consolidation works by using an equity loan to pay off your existing debts. You can borrow against the equity of your property and while the new loan may have a longer schedule of payments, it will have a better interest rate than the existing debts.

For example, Oliver is a homeowner with three credit cards and a personal loan. His monthly payment for each is $100 per month. His disposable income only extends to $300. So before he can even get started paying down his debt he is accruing more debt through missed payment penalties and additional interest. He may potentially open up new lines of credit to feed these ones. A solution that only marginally improves things short term and beyond the first few months only makes things worse.

Like most people, Oliver doesn’t realise that he can access additional equity that is currently locked up in his property. He can use that equity to minimize his monthly outgoings by consolidating them with a loan against his equity.

When he purchased his property for $600,000 in 2016, he arranged a mortgage with a value of $480,000. Currently, his balance stands at $450,000, while the property is worth $850,000. If Oliver were to sell his property he could clear easily clear his mortgage, loan and credit card debts in one go. But Oliver and his family would have nowhere to live. Not ideal.

Instead, Oliver could arrange an equity loan to release some of the approximately $400,000 of equity currently locked up in his property to not only pay off his debilitating debts but also improve his credit rating.

All the time that Oliver spends missing payments and accruing more debt, he’s hurting his credit score. This results in a narrowing of his options for future credit, leaving him vulnerable to worse and worse borrowing arrangements.

Oliver’s credit cards have interest rates between 18% and 21% while his loan is at 7%. Even if he was making his monthly payments, an appreciable amount of his payments are going towards interest the interest, rather than the debt.

Alternatively, Oliver could take an equity loan, borrowing against the value of his home, to pay off his four existing debts. An equity loan with a 10% interest rate and a $300 monthly payment would be within Oliver’s means and more of his $300 monthly payment will go to paying off his principal debt rather than the interest.

Is Debt Consolidation For You?

As the Bank of Canada has illustrated a vast number of citizens could benefit from taking more control over their finances and their debt. One of the problems homeowners face when tackling their financial problems is getting good advice from someone they can trust.

At our team is made up of independent experts with access to hundreds of different lenders. Their years of experience mean they can assess your situation thoroughly, ascertain the potential value of an equity loan for you and help you pick a lender whose offering best matches your needs.

To find out what options might be available to you for refinancing your mortgage, contact contact today and start a conversation about saving money.

Bob Aggarwal

Mr. Aggarwal was one of the original founders of, one of the largest volume Mortgage Brokerage houses in Canada. Mr. Aggarwal has over 12 years of experience in Brokerage and Lending in the small and medium business sector, as well as experience and expertise in the residential housing market. Since the inception of, Mr. Aggarwal has been instrumental in developing the operating platforms, and policies and procedures which have guided the organization to date.


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