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Consolidation and the Never Ending Mortgage

May 17

In this time of historically low interest rates, you would think people must be paying off their mortgages at lightning speed. Why? When interest rates are low, less money from each payment goes towards paying interest and more money is applied against the principal of the loan. This means homes can be paid off months, maybe even years earlier. The reality, unfortunately, couldn’t be further from this ideal.

Many homeowners are actually increasing their mortgages with debt consolidation because of our low interest rate environment. Average interest rates for secured debt like a mortgage, range around the six to eight per cent mark. With mortgage rates being much lower than that, instead of paying things off more quickly, people see this as an opportunity to consolidate their other loans and credit debt. The prospect of consolidation doesn’t bother them as much as it might normally, because the debt is relatively cheap to carry.
Consolidating debt is a band-aid solution. It might save you money or relieve pressure for a time, but it won’t solve the underlying problem.

Let me explain: Oftentimes, debt is a symptom, not the root cause of your money troubles. There are many reasons why indebtedness occurs – business ventures don’t always pan out, people get sick, and unemployment can be a significant cause. Most commonly, however, poor money management is the main reason we see debt building.

Many people vow to never incur another cent of debt after they consolidate the first time. Still, these homeowners are mystified when they find themselves in the exact same situation, or worse, just a short few years later. This leads to a vicious cycle of mounting debt and consolidation that repeats itself. The effort is akin to taking Tylenol instead of seeking out treatment for a serious health problem. This head-in-the-sand approach ignores the larger problem, allowing it to grow worse over time.

How Can a Personal Financial Trainer Help?

Consolidating your debt may be a good means of reducing your debt burden pressures. For many people though, the problem is not just the money they owe, it’s their ingrained spending habits which caused their debt load to grow in the first place.

Changing the way we think about spending, budgeting, savings and the things we want takes time. It also takes training. The mental shift is difficult, but it pays enormous dividends, both now and in retirement.

A Personal Financial Trainer focuses on the root problems, not just the symptoms or the great pile of debt people find themselves consolidating. They work closely with clients to help them change their money habits and mindset, by providing the proper checks, balances, and feedback needed to help eliminate unwanted debt for good.

About The Author

Hi, I'm Avraham (pronounced Av-Rum.) I'm a reformed spender, financial coach, and the founder of Avraham Byers Financial (I'm better with money than coming up with company names.) In a funny and non-preachy way, I teach people how to take control of their finances without giving up their smoked butterscotch lattes.
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