Last month I met a middle aged couple who had accumulated more than $240,000 of unsecured debts via thirteen different credit cards and lines of credit. Their minimum monthly payments on this staggering debt load was well over $5,000– which is about how much their combined take home pay is each month.
The debts had built up over several years; and of course recently they were simply “robbing Peter to pay Paul” – taking money from one credit facility to meet the minimum payment required of the other. But now they had run out of options; all their cards were near maxed out.
The Cobbs actually have very good credit histories – never any late payments and very few credit inquiries – both had a credit score of around 700. This saved their bacon.
When I met them, Mr. and Mrs. Cobb had a fairly modest mortgage balance owing of $150,000 and their property was projected to a value over $500,000. So they had lots of equity in their home.
[notice]The challenge was to extract as much equity as possible out of their home; refinance it at today’s incredibly low interest rates, and pay off ALL the unsecured debts.[/notice]
The interest rate on their debts ranged from 3.7% all the way to 24.99%.
We were able to arrange an additional $250,000+ of mortgage financing at a rate of 2.69%. Their monthly mortgage payments have increased by only $1,028, and their monthly debt payments have been eliminated. How great is that to improve your monthly cash flow by over $4,000!
Now they have total mortgage financing of around $400,000 and zero unsecured debt. Notice they still owe the exact same amount of money as before, but the difference is staggering. Instead of being completely financially crippled each month, the Cobbs can breathe again and sleep well at night.
This was possible because:
- The Cobbs had maintained an excellent repayment history, even when times got tough
- Their income is enough to comfortably cover the increased mortgage amount
- They did not wait till it was too late
Perhaps I see more of this than other mortgage agents, as I am also a registered credit counselor – but there are many people out there who are in similar circumstances as the Cobbs. (Perhaps not as extreme, but nevertheless equally painful situations)
[notice]Debt is the elephant in the room which we tend not to discuss with our friends and family – yet it has gotten out of hand for many Canadians.[/notice]
If you have lots of debt and no hope of repaying it without some form of drastic change in your life, it’s time to get proactive. If you are a homeowner, you may be able to extract sufficient equity from your home to pay off all your debts, much as the Cobbs have done.
If there is not enough equity for that, maybe we can negotiate a discounted settlement with your creditors in exchange for a lump sum payment.
And if you are not a homeowner, the best choice for you may well be a consumer proposal or even a personal bankruptcy, depending on your unique circumstances. In all cases, you would be wise to consult a subject matter expert for advice.
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