Are you finding yourself overwhelmed by your debt load? If you are, you are not alone. In fact, according to a recent report by Certified General Accountants Association of Canada, Canadian household debt has more than doubled since 1989.
There is a short video clip on globeinvestor.com that will give you some advice on how to beat your problems with debt. Laurie Campbell, from a non-profit organization called Credit Canada, speaks with Rob Carrick about how to tackle your debt issues.
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According to a poll carried out by Investors Group, 62% of Canadians plan to retire while still being in debt. In fact, many people polled indicated that they were willing to retire regardless of whether their mortgage was paid off.
As well, the poll results indicated that Canadians seem to be worried about rising interest rates. There is a big concern right now that Canadians are taking on too much debt at these incredibly low interest rates, and then when interest rates begin to rise, it will cause many Canadian households to be under financial stress due to increased interest payments.
We as Canadians need to become more responsible for the amount of debt we are taking on. Although it may seem really affordable right now, we have to remind ourselves that we are enjoying historically low interest rates. They won’t last forever. In fact, the Bank of Canada may even increase their rates as early as June 1st.
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If you are are in an open variable rate mortgage like we are right now, you may want to consider if it’s better to move into a fixed rate mortgage before the prime rate goes up. The Bank of Canada will likely be raising interest rates soon and although prime is at an all time low right now, it won’t stay there forever. Some major banks have already raised their fixed mortgage rates, so if you are thinking of switching, now is the time to do it before the rates go up even higher.
For my husband and I it makes the most sense for us to stay where we are as we are likely going to be selling our home within the next year or so. For those of you who are not planning on selling your home anytime soon, you may find it more affordable within your budget to take advantage of a fixed rate.
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If you come by some extra cash or you are frugal in your budgeting, you can pay off your mortgage faster than the lender requires and as a result you can save money in interest charges.
Focusing on paying down your mortgage debt can be beneficial, however, you need to keep a few things in mind before paying off your mortgage:
1. First of all, if you have higher interest debt such as vehicle loans and credit cards, it makes far more sense to work towards paying down that debt first. Generally mortgage interest rates are lower than other forms of debt, so once you have paid off more expensive debt, you can work towards paying down your mortgage.
2. Secondly, you want to make sure that you have enough money kept liquid and accessible in the form of an emergency fund and once you have enough saved, then you can start focusing on paying off your mortgage.
3. Third, if you are an entrepreneur at heart, you won’t want to be putting all of your excess money into your mortgage because you will probably have other plans for your money such as for funding your latest business project.
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by Pam on November 29, 2009
It looks like you may have reached a turning point in the road. Whether it’s for an auto loan, a personal loan, or department store credit, you may not be able to qualify by your own merits. This is when the cosigner comes into play. The best place to look for a cosigner is within the family, or among friends. You’ll want to trust them just as much as they will want to trust you.
If this individual is backing your loan, they will be privy to the same credit checks as you would be if this were your loan all by itself. Their creditworthiness is based on income, homeownership, credit history, and job security. If you default on any payments, the cosigner will have to pick up the tag. That’s why it’s good to make sure that you have all of your ducks lined up in a row before you put the cosigner’s financial credit rating on the line.
Say what you mean and mean what you say!
To the cosigner, you are saying that you plan to honor the credit contract to the letter they have cosigned for. Don’t try to take on too much new credit at first. Take the time to really look at your spending habits. If you have had trouble in the recent past keeping up with your finances, this may not be the best time to put someone else in the cross hairs.
Building and managing credit is a huge responsibility. Just ask any one of the thousands of people that have low credit rating scores. These people started out in good faith. They had every intent of making sure their payments would be complete and on time. However, things often happen beyond anyone’s control and those things that happen are events that can often send a good credit rating south for much longer than just the winter.
Put aside a little money each month to cover the loan repayment and make it a priority. Protect the person who cosigned as if he or she were you. Remember that the reason you needed them in the first place was because you couldn’t qualify on you own merits. That doesn’t make you a bad person in the least. It just means that it may take a while before the system deems you credit worthy and until that happens, make sure you have the cosigner’s best interest at heart.
About the Author
Liz Roberts is a loan consultant with New Horizon Finance, specializing in bad credit,& has been providing consumers & business owners with financing since 1989. Join Experian Triple Advantage at http://www.newhorizon.org & get a free credit report & credit score.
by Pam on November 19, 2009
This is an age-old question and after doing some research on the subject, I have discovered that there are a lot of differing opinions out there. Some say you should pay off all your debt before contributing to an RRSP, while others suggest making RRSP contributions when you are young and then focusing on paying down your mortgage when you are older.
The answer to this question, however, really depends on you and your own personal comfort with debt. There are a lot of people out there who absolutely despise being in debt and will do everything in their power to get out of debt, while others are okay with being in debt, at least to a certain extent.
When considering what to do, it’s a good idea to talk to a tax specialist and/or a financial planner. Sometimes people end up doing ridiculous things in order to avoid paying tax, so it’s important to consider all aspects rather than simply focusing on reducing the amount of tax you pay.
Some specific things to consider when choosing between saving for retirement and paying off your mortgage include your age, current tax bracket, investment returns, mortgage interest rate, and whether or not you have a pension plan.
After skimming through several articles on this subject, I noticed that most people suggest doing both. That way you will feel as if you are getting somewhere, since simply paying down debt is supposedly not as psychologically satisfying. Another opinion I stumbled upon was that it’s better to pay off your mortgage first if your mortgage interest rate is equal to or higher than your RRSP’s rate of return.
It really all boils down to what you deem is most important for your own personal situation. If you want to read chartered accountant David Trahair’s opinion on why you should pay off your mortgage before contributing to an RRSP, check out this link.
If you have come across some extra money due to an inheritance, etc., I would encourage you to do your own research prior to making a decision. There are pros and cons to both sides and it may be wise to do both simultaneously. As the saying goes, it’s not a good idea to put all your eggs in one basket. On the other hand, sometimes it makes the most financial sense to choose one over the other.
Although it may not seem like much, making extra payments towards your mortgage and loans can save you a significant amount of money in the long run. Even just a few extra dollars here and there is worth the effort to put towards your principal.
