Zoe Banks, age 34, is single and works as an engineer where she earns $110,000 per year. While she has a very good income she is struggling to make ends meet because of the debt she has accumulated.

She moved to Toronto almost five years ago and bought a condo , close to work. After her move she spent a lot of time and money on her active social life and entertainment while enjoying the city. Over the last year she has realized that she has accumulated a lot of debt and she needs to get her spending under control and her financial health on track. She shares with you the following information about her debts:

Debt	Balance	Interest Rate	Monthly Payment	# Years to Repay
ABC Visa	$13,100	19.99%	$262	9.2
XYZ Mastercard	$19,300	21.00%	$386	10.2
Unsecured Line of Credit	$10,000	9.00%	$200	5.2
Mortgage	$434,570	3.75%	$2562.78	20.08

 

In addition to Zoe's debts, she is spending $300 more per month than she makes. She asks you about consolidating her debt so that it is easier to manage:

 

a) How much would Zoe save each year if she consolidates her non-mortgage debt into an installment loan at 8.0% for 5-years?

b) Does Zoe have enough equity in her condo to consolidate her debt into her mortgage? How much would Zoe save each year if she consolidates her debt into her mortgage at renewal and maintains her current amortization? Assume that she will renew her mortgage for a 5-year fixed rate at 4.0%?

c) Which option would you recommend for Zoe? Why? 

Answer rating: 100% (QA)

a Zoe would save an estimated 291945 each year if she consolidates her nonmo... View the full answer