From Debt to Financial Freedom: The Power of Debt Consolidation
How Debt Consolidation and NASDAQ ETF Investment Can Build Wealth
Managing multiple debts can be overwhelming, but what if you could reduce your monthly payments and grow your wealth at the same time? That’s exactly what Sarah did. By consolidating her debt into a mortgage and investing the freed-up cash flow into a NASDAQ 100 ETF with a 10-year average return of 16.79%, she significantly improved her financial situation.
In This Blog, We’ll Cover:
✅ How consolidating debt can improve cash flow
✅ How investing those savings in NASDAQ 100 ETFs can grow wealth
✅ A 5-year comparison of debt paydown vs. investment growth
Sarah’s Debt Situation
Sarah had multiple debts, each with different interest rates. A major issue was that her credit card and line of credit payments barely covered the interest, meaning the principal balances were not decreasing.
| Debt Type | Balance | Interest Rate | Minimum Payment |
|---|---|---|---|
| Credit Card | $10,000 | 20.00% | $200 (2% of balance) |
| Line of Credit | $20,000 | 5.25% | $400 (2% of balance) |
| Car Loan | $15,000 | 5.25% | $285 (5-year amortization) |
| Student Loan | $20,000 | 5.20% | $379 (5-year amortization) |
| Mortgage | $525,000 | 4.99% | $2,400 (29-year amortization) |
Total Monthly Payments: $3,664/month
With such high payments, Sarah was struggling with cash flow issues.
Debt Consolidation Plan
To lower her monthly payments, Sarah consolidated all her debts into a new mortgage with a 4.25% interest rate and a 30-year amortization. Here’s what changed:
✔ New mortgage balance: $590,000 (original mortgage + all debts)
✔ New interest rate: 4.25%
✔ New amortization: 30 years
✔ New monthly payment: $2,880
By consolidating, Sarah reduced her total monthly payments from $3,664 to $2,880, freeing up $784 per month.
Investing the Cash Flow Savings
Instead of spending the extra $784 per month, Sarah invested it in her RRSP using a NASDAQ 100 ETF.
Assumptions:
✅ 16.79% annual investment return (10-year average of iShares NASDAQ 100 Index ETF (CAD-Hedged) (XQQ))
✅ 30% RRSP tax rebate, reinvested as a lump sum every May
Understanding the RRSP Tax Rebate
Sarah earns $95,000 per year in Ontario, placing her in a marginal tax bracket of approximately 30% (federal + provincial combined). Since she contributes $784/month ($9,408/year) to her RRSP, she receives a 30% tax rebate on this amount.
✔ Total annual RRSP contribution: $9,408
✔ Estimated tax rebate: 30% of $9,408 = $2,822
✔ Reinvested lump sum every May: $2,822
By reinvesting this refund, Sarah further accelerates her investment growth.
Investment Growth Over 5 Years:
With both her monthly investments and reinvested tax rebates, Sarah’s portfolio grew to approximately $102,389 over 5 years!
Best NASDAQ 100 ETFs in Canada (CAD-Hedged)
For Canadian investors looking for NASDAQ 100 exposure while avoiding U.S. dollar fluctuations, here are the top options:
✨ iShares NASDAQ 100 Index ETF (XQQ) – BlackRock
✔ MER: 0.39%
✔ Why Choose It? Tracks the NASDAQ 100 with currency hedging, protecting against USD fluctuations.
✨ BMO NASDAQ 100 Hedged to CAD Index ETF (ZQQ) – BMO
✔ MER: 0.39%
✔ Why Choose It? Similar to XQQ but managed by BMO, another reputable ETF provider.
Debt vs. Investment Growth After 5 Years
How did Sarah’s financial position change after 5 years?
| Scenario | Remaining Debt | Investment Value | Net Position |
|---|---|---|---|
| Without Consolidation | $526,214 (credit card & line of credit remain) | $0 | -$526,214 |
| With Consolidation + Investing | $537,100 (slightly higher mortgage balance) | $102,389 | -$434,711 |
Key Takeaways:
✔ Sarah improved her net position by $91,503 in just 5 years!
✔ Her investment is liquid, giving her flexibility.
✔ She paid down debt while also growing wealth.
While extending her mortgage means carrying debt longer, the benefits of higher investments and improved cash flow outweigh the downsides.
Final Verdict: Is Debt Consolidation + Investing in NASDAQ ETFs Worth It?
✔ Lower stress: Monthly payments dropped from $3,664 to $2,880
✔ More cash flow: Extra $784/month available for investing
✔ High-growth investment: $102,389 in just 5 years
Sarah could let this investment continue compounding or use it to pay down her mortgage early.
Would you choose to invest your cash flow savings, or pay off your mortgage faster? Let me know in the comments!
Sources & References:
✔ XQQ 10-Year Performance – Yahoo Finance
✔ XQQ ETF Overview – BlackRock
✔ ZQQ ETF Overview – BMO
✔ CRA Tax Brackets (30% RRSP Refund Estimate) – Canada Revenue Agency
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Disclaimer:
This blog is for informational purposes only and is not financial advice. Always consult with a financial advisor before making investment decisions.
NASDAQ 100 ETFs are highly volatile, as demonstrated by their returns in recent years:
✔ 2022: NASDAQ 100 ETF was down -29.15%.
✔ 2023: It surged by 30.87%.
The high volatility of NASDAQ investments makes it important to carefully assess the risks involved before committing.
Additionally, NASDAQ ETFs are best suited for long-term investments (10+ years), even though they can be redeemed at any time.
And past performance does not indicate it will be repeated in the future performance
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