The average American has $38,000 in debt—not including mortgages. This is $1,000 higher than it was last year, according to a study done by Northwestern Mutual. It’s easy for even the most responsible borrower to end up needing a little help with their debt, and the best mortgage lenders will not only help you gain the money you need for homeownership, but can be your partner in debt management.

What Is Debt Management?

Specifically, as it relates to mortgages, debt management is the process by which your lender helps to make your mortgage debt easier to pay off over time. Generally speaking however, there are three primary objectives of overall debt management:

  1. Significantly decrease your interest rate. The average interest rate on your debt can be anywhere from 3-20% and sometimes even higher. Overall debt interest rate reductions of just 0.75% could result in significant savings. It is critical to constantly track your debt and take advantage of opportunities to lower your rates.
  2. Help you pay off debt faster. With a variety of timelines and payment periods, paying off all of your debt may be a lengthy process. However, with active management and monitoring of that debt, you can streamline the payment process as well as make your monthly payment cover more of the principal, which makes your debt disappear faster.
  3. Consolidate multiple debts into one payment. The amounts you owe several entities can be added together to form a single obligation. This way, one payment helps fulfill multiple debts all at once.

How Does Refinancing Help with Debt Management?

Usually, the biggest single debt obligation a homeowner has is a mortgage. When you are considering the best way to manage your debt, your mortgage rate should be the first target in your cross-hairs. Getting the mortgage rate lower can help you pay less right now and also own your home outright much sooner.

For example, if you bought a home for $400,000 and paid $20,000 for your down payment, with a 6% interest rate, your monthly mortgage would be about $2,278 not including taxes and insurance fees. However, if you refinance at 4.5% after having paid down $5,000 of the principal, your monthly payment plummets to $1,900. You save $378 each month.

Even if Your Payments Aren’t Too High, Refinancing Can Help

Many homeowners are able to pay all of their debt every month without too much trouble. But refinancing can still be a powerful tool to help erase their debt sooner. Using the above example, the homeowners would have an extra $378 to put towards other debt they have to pay off. This could also go toward the principal, which would eradicate the debt much faster.

Furthermore, once the debt is consolidated, the interest rate on the remaining debt will be much lower. This further boosts the debt-killing power of that $378; even more of it can go towards the principal. Regardless of how this new financial power is leveraged, debt management is the first step towards the solution.

Take Advantage of Low-Interest Rates

The economy is looking good, but, surprisingly, the interest rates are still low. Strong economies usually cause interest rates to steadily creep higher, which raises an important question: How much longer will interest rates stay this low? Current mortgage rates are some of the lowest of all time because the Federal Reserve is holding them down. It’s best to refinance now before the market gets the interest rate adjustment it has coming.

The Power of a Genuine Relationship with Your Mortgage Company

Most mortgage companies are just out to close on the transaction, take their money, and continue to collect each month. However, a good mortgage company is one with whom you have a mutually beneficial relationship. A good mortgage company will work with you to find ways to give you more financial power.

This kind of lender uses thoughtful, careful debt management tools to make sure you have more money and less debt. This fosters an earnest relationship that gives you more than borrowed money; it gives you greater financial security. The road to this relationship will be paved with the right questions. Here are some of the most important.

Questions to Ask Potential Mortgage Providers

  • Do you have tools to help lower my interest rate?
  • Can I consolidate my debt and refinance at the same time?
  • How low are your refinancing rates?
  • Do you offer FHA loans?
  • What are my options for an adjustable-rate mortgage, and what are the advantages?
  • Do you offer VA home loans?
  • Do you have solutions that can help me pay off my mortgage faster?
  • How long does it take to close on a loan?

Getting the Right Debt Management Plan for You

Using the questions above, you will be well on your way to identifying a company with the best debt management plan for your needs. Make sure you check out the various services each plan includes. Ask about the price as well to ensure your solution fits your budget. Ultimately, as you choose your mortgage provider, you want more than just a payee. You want a the best mortgage lending partner possible.