Life happens and sometimes debt is unavoidable. And at other times we make mistakes and place ourselves in debt - with regret. Regardless of how you got into debt, the important thing is to not ignore the problem. Managing your situation is very important.
A few rules to follow:
1. When you can't cover all of your expenses, prioritize your mortgage payments if possible. It will matter when you try to refinance later on.
2. Pay the minimum payments on your credit card if you can, even if you can't pay the full balance.
2. If your debts are piling up due to a marital break down, protect yourself by creating separate accounts if possible. For example, sharing a line of credit could lead to trouble. Contact your lender to change the terms of a line of credit.
4. If you have equity in your home, speak with a mortgage broker about a refinance sooner rather than later. You can choose to not refinance, but know your options first. If you wait until things get really bad before asking for help, you may find yourself facing a mortgage rate well about competitive interest rates. Sadly I see this too often.
5. Knowledge is power. Be aware that there are a variety of options in a debt consolidation plan if you have equity in your home. I have seen people who have fallen into the trap of believing that there is only one mortgage product available to them. This can result in them getting into an unnecessarily expensive or restrictive product. And a mortgage broker is the person with access to the different options from different types of lenders. 2nd mortgage? Total refinance? CHIP Mortgage? Private Mortgage? You might be surprised on which option is best for you.
Real client story:
For a few reasons, the best way to consolidate debt for a recent client was to get a second mortgage. I consulted with a variety of lenders. Second mortgage are more expensive than first mortgages. Rates ranged from 8.5% to 14%. My client was relieved to have me shop around for him to ensure the lowest rate possible.
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