Debt in America has never been so high — U.S. households now carry $1.263 trillion in credit card debt alone, according to the Federal Reserve Bank of New York. Many households are balancing staying above water or balancing their savings against rising costs of living, and inadvertently leaving money on the table. This article explores why homeowners need to assess their debt — and how to do that.

Ask many homeowners what their interest rate is, and they can tell you without skipping a beat. “Three and a quarter.” “Three-point-nine-nine.” Rightfully so, because the savings is real, and feeling good about it is only natural.

However, and here’s the catch, if you are underfunding retirement, have an impending major expense, or are protecting a low mortgage rate while total debt is quietly accumulating at a higher rate, you may end up losing more than a low mortgage rate is saving. If this describes you or you are thinking about financing other debt, read on.

We consider ourselves to be debt managers rather than loan brokers. Why? Because managing debt is as important to achieving your wealth goals as a wealth manager. A debt manager helps ensure you are paying the least possible for your total debt and leveraging yourself in a healthy, balanced way to achieve your goals and navigate life’s financial ups and downs.

Of course, keeping an eye on the market for a good time to refinance is a good first step. We do that with our mortgages under management program, setting an optimal strike rate for you and reaching out when the rate becomes available. But that is just a start when it comes to managing your debt. Whether it’s an underfunded retirement or life dishing up financial surprises, things change, and so should your strategy. Draining your emergency savings isn’t the best go-to. When non-housing debt runs up for any number of reasons — a new car, paying for a child’s education, home repairs, unexpected medical expenses, or just day-to-day living — you could end up paying a lot more for your debt than expected. That’s money in your pocket you could use for other things.

How do you know? Your blended rate, which reflects what you are paying across all your debt, not just your mortgage.

What a blended rate is

Your blended rate is the average of the interest rates across everything you owe, weighted by how much you owe on each. A $225,000 mortgage at 3.25% and a $40,000 credit card balance at 18% do not meet in the middle. The mortgage pulls the average down because the balance is large; the card pushes it up because the rate is high. Size and rate both matter, and the blended rate accounts for both.

The math is simple enough to do at your kitchen table. For each debt, multiply the balance by its rate to get the interest it costs you in a year. Add those dollar figures together, then divide by your total balance. The result is the single rate you are effectively paying on all of it.

Blended rates change over time

On the day you signed your mortgage papers on your new house, your blended rate and your mortgage rate may have been very close. Then time passes, expenses happen, and years add debt.

Here are some of the ways it happens:

• A roof or an HVAC system reaches the end of its life and goes on a line of credit.
• A medical procedure leaves a five-figure balance on a card or a payment plan.
• The pool, the addition, or the kitchen gets financed.
• A car gives out at the wrong moment, and the replacement is financed at whatever auto rate is on offer that week.
• Credit card balances rise a little each year — a season of travel, a run of repairs, a stretch where the balance stopped getting paid to zero.

This is what a full decade of ordinary life tends to look like. But each new balance arrives with its own rate attached, and the blended number moves as they add up.

What it looks like on paper

Picture a homeowner with a 3.25% mortgage from 2021, and every reason to be glad they have it. Here is what the rest of the picture might look like after several years:

Divide the total annual interest by the total balance, and the blended rate is 6.68% — not 3.25%.

This is what the mortgage rate alone leaves out. A low rate on one loan tells you how good that loan is; it tells you nothing about the efficiency of the whole structure. The blended rate shows you that.

Why a higher mortgage rate can lower your blended rate

Once you can see the blended number, a move that sounds backward at first becomes easier to follow: refinancing the mortgage to a higher rate can lower what you pay across everything.

It is the weighted average working in the other direction. Fold the high-rate balances into a new mortgage, and you trade several double-digit rates for one single-digit rate.

If your blended rate is already at or below the rate you can refinance into today, folding everything into a new first mortgage won’t save you — your low first-mortgage rate is doing its job, and it should stay where it is. The move helps when high-rate balances have grown large enough to pull your blend above current mortgage rates. Whether you are or will be above or below that line is what the blended number tells you, and it is the reason to calculate it before deciding anything on new debt or continuing your current path.

The rate on any single loan would not have shown them the savings. The blended cost across everything they owed did — coupled with the strategy to accelerate payments.

What about financing short-term debt over the long term, doesn’t that cost more in the end? — you might have heard someone say. It can, but not necessarily. And sometimes a lower payment is needed to stop accumulating debt. There are many reasons you might want to restructure in the short term for a lower monthly payment now, separate from whether you save on the long-term calculation. These reasons are unique to your family and your plans. You can always accelerate principal payments later.

In conclusion

Whether consolidating makes sense depends on your specifics: your balances, your rates, your equity, your situation, and how long you plan to stay in the home. A Home Financing Analysis lays out the whole picture — your blended number, what a consolidation would do to it, and whether holding your current rate is helping you or costing you. If you would like to see yours, reach out for an HFA.

Illustrative figures are for explanation only and are not an offer of credit or a quote. Individual results depend on your full financial profile.