While it’s true that there are many avenues of varying shapes and sizes to building wealth, there can be little argument that a lifestyle chalked full of overspending and high-interest credit card debt is the kiss of death when it comes to wealth building.
Flush from the last decade of capital appreciation as a result of one of Canada’s longest running real estate booms, homeowners are taking advantage of their accumulated equity to complete debt consolidations at a record pace … or at least they should be.
With mortgage rates down over 0.50% off of their recent peak, and expectations set for a further reduction in fixed rates and a future lowering of prime, it makes more sense than ever for those “over-indulgers” to engage in a debt consolidation and improve their overall cash flow positions.
While most credit cards carry interest rates in the 10 – 24% range, comparable mortgage rates are in the 4 – 5% range at the moment. Unfortunately, far too many Canadian’s continue to spend beyond their means and accumulate ever-increasing monthly payments.
Making only the minimum payment on one’s obligations is great to maintain a healthy credit score, but elongates the time in which it will take to pay off those debts. The more principle that can be applied to the payments, the lower the overall cost of borrowing and the higher the savings of interest in the long-term.
When considered over the long term, a secured debt consolidation and the resulting cash flow improvements can be the key to building long-term wealth. With proper debt roll-down strategies and mortgage amortization tips, an educated consumer can take control of their financial future and begin to increase their overall wealth.
Don’t forget that there is a difference between “good debt” and “bad debt”, with the former helping you to build wealth (eg: RRSP loans, investment property mortgages, etc …) and others holding you back (Credit cards, high-rate personal loans, etc …)