If you are carrying credit card balances or a line of credit, you probably have a goal to be debt free in five years. While that is a great objective, the monthly cost to hit that goal using your current income can be incredibly high.

When interest rates on credit cards stay near 20 percent, most of your payment just covers interest. This creates a massive strain on your monthly cash flow. If you own your home, you could reach that "zero balance" goal while significantly lowering your monthly expenses.

Looking at the actual numbers

It is easier to see the benefit when you look at a real world scenario. Here is a homeowner working hard to pay off their debt over the next five years.

The Current Situation

• Mortgage balance: $140,000 (Payment: $1,030)

• Credit card balances: $34,000 (Payment: $900.79)

• Line of credit balances: $25,000 (Payment: $524.44)

• Personal loan: $20,000 (Payment: $549)

• Total monthly out of pocket: $3,004.23

These payments are set to hit a zero balance in five years, assuming no new spending. While the plan is solid, it requires over $3,000 every month. This leaves very little room for groceries, utilities, or emergencies.

The After Scenario 

By refinancing, you could potentially roll all of those debts into one mortgage. This pays off the cards, the personal loan, and the line of credit immediately.

• New mortgage amount: $225,000

• New monthly payment: $1,715.33

The Result: A $1,288.90 monthly difference

By moving high interest debt into your mortgage, your monthly obligation drops from $3,004.23 to $1,715.33. This results in a monthly difference of $1,288.90.

The real benefit is what you can do with that extra cash flow. Instead of that money disappearing into interest, you have over $1,200 for your actual goals.

You could use that monthly difference to build an emergency fund or put it into long term investments. It could also go toward better insurance coverage or even be used as prepayments on your new mortgage. By applying that $1,288.90 directly to your principal, you could potentially bring your balance down even faster than your original timeline.

Is this the right move for you?

If you are tired of a high monthly debt load, it is worth looking at your options. I can help you run the comparison for your specific balances to see if a refinance makes sense.

Taking a look at the numbers now is the first step toward getting your budget back under control. You can contact me directly at (902) 402-9779 or greg.matthews@mortgagegroup.com, or start a quick application by clicking here.