Pay less interest on your debt

Like many people, you probably don’t like paying variable interest rates on large debts, such as mortgages, since you prefer to be shielded from rate hikes.

But have you considered the significant interest you’ll pay over the lifetime of your debt on high-interest credit cards and loans?

For example, your debt structure may look like this:

• $82,000 mortgage at a fixed rate of 3.25%; • $25,000 unsecured line of credit at 6.5%; • $19,000 credit card at 19%; and • $5,000 store card at 28%.

If this is the case, you’re currently paying more than 7% interest on your total debt (based on a weighted-average calculation). Don’t make the mistake of focusing on only your fixed-rate mortgage, which most people perceive as safe and predictable.

To help lower your total interest rate, you need a different repayment approach. For instance, you could switch to a variable-rate open mortgage since those typically offer lower interest rates — so long as the benefits of switching outweigh any incurred penalties. Also, if suitable, you could choose a home equity line of credit over your unsecured line of credit.

If you’re able to structure your debts efficiently, you could free up cash flow that will help you pay your debts off faster.

Still, when looking at restructuring debts, focus on more than interest rates. If you only consider the benefits of limiting exposure to interest rate volatility, you’ll fail to also take into account the total principals and amortizations of your debts.

Ask your advisor to help you consider all repayment factors by explaining possible debt structures and offering comparisons of relevant repayment strategies. Stephanie Holmes-Winton is a Halifax-based financial services educator and speaker.