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.

For example, if you take out a loan for $5000 at an interest of 6%, it would take you 5 years to pay it off if your monthly payment is $96.66.  However, by adding an extra $50 to your monthly payments, you could pay off the loan in full within 3 years 2 months.  If you added $100 extra to every monthly payment, you would pay off the loan in 2 years 4 months.

To make this more meaningful to you, check out this loan calculator and punch in your own loan or mortgage information to see the impact of increasing your regular payments or by adding a one-time lump sum.

My husband and I found that by putting extra money down on our mortgage, it has saved us hundreds of dollars on interest charges.  Our goal is to aggressively pay down our mortgage while at the same time not neglecting to save for our future retirement and other goals.

It feels good to pay down debt as it lifts a burden from your shoulders.  If you have difficulty using your money wisely, help yourself by putting any extra money away towards the principal of your loans so that you won’t be able to spend it on things you don’t need.

Just think, the sooner you are debt free, the sooner you will be able to use that excess cash flow for the things you really want to do but without the guilt or burden of knowing you will eventually have to find a way to pay for it.

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.

This is what the video covers:

First, you need to ask yourself: Are your expenses reasonable?  Do you really need to buy all the things you buy each month?

When you take a close look at your debt situation, do you need more intervention?  Have you considered a credit counseling service?

According to Laurie, creditors do sometimes agree to stop charging interest in order to try to recover the amount owed to them as well as to make their company look good. This is a great way to help you to pay down your debt at a much faster pace.  Unfortunately, folks with credit card debt often make payments that only take care of  their interest charges and it can take years to pay down their actual principal.

Although Canadians can deal directly with their creditors, Laurie emphasizes that if you are able to work something out with them directly, you must:

*Get the agreement in writing.

*Understand that there will be a due date.  Their grace has a time limit.

*Ensure your creditors agree to the specific terms you discussed.

*Ensure that you and your creditors keep the agreement on record for at least 7 years.

The most important thing to take away from this short video is that it is important to be aggressive, not passive, when it comes to tackling your debt.  Don’t hesitate to obtain help from a debt counseling service.

Also, before considering filing for bankruptcy, you might want to undergo a consumer proposal, whereby you only have to pay back a portion of your debt. This will be less impactful to your credit rating and it will not be noted as a bankruptcy.   Another advantage is that you get to keep some of your assets. Check out the video for more details on how to tackle your debt.

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 1^st.

If you are currently considering making a home purchase, be sure to consider not only the cost of borrowing in the current rate environment, but also be sure to ask how much it will cost when the rates go up.  You do not want to end up in a position where you end up not being able to sleep at night because you are worried over your finances.  Life is already complicated enough, don’t add to your complications by digging yourself into a hole financially.

An article on globeinvestor.com discusses the Investors Group poll results in more detail.  The thing that struck me the most, however, was the fact that people are willing to retire before they have paid off their debts.  I cannot understand why anyone would want to do something like that, but apparently more than half the Canadian population is fine with the concept.   If you are like me, and you are not willing to retire while still in debt, there are some key things you can do now to ensure that you don’t have to be in the same boat as many of your fellow Canadians.

Some things you can do to ensure that your debts are paid off before you retire include:

1.  Proactively pay down your mortgage whenever you come by extra money that is not needed for an emergency fund.

2.  Avoid taking on more debt than you can safely afford in any interest rate environment.

3.  Pay off your credit card balance every month.

4.  Get in the habit of paying yourself first.  Don’t spend more than you earn, and don’t acquire debt for things you don’t need.

These tips are pretty basic, but you will discover that if you display these key behaviors you will be much less likely to ever have to consider retiring while you are still deep in debt.

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.

The best way to determine whether or not you can afford to stay in an open variable mortgage is to check with your mortgage representative at your financial institution and find out what your mortgage payments would be if prime went up to 3%, 4%, 5%, 6%, etc.  If you don’t think you will be able to afford your payments when prime increases, then it’s definitely better for you to take advantage of a fixed rate mortgage ASAP.

The neat thing about having an open mortgage is that you don’t face any penalties if you decide to change your terms or even change your financial institution.  If you like the idea of staying with an open variable rate mortgage, keep your eyes and ears open, because as the prime rate goes up, you will likely be able to change your terms to get a better deal.

For example, right now we have a variable rate that is based on the prime rate.  Once prime goes up, it might be possible for us to find a financial institution offering an open variable rate of prime minus 1%.  Since our mortgage is open, we would be able to take advantage of these better terms without any penalty.  So, if you decide to stick with an open variable rate mortgage, be sure to look out for better terms and take advantage of them.

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.

4.  Fourth, you may want to start building up your retirement savings at an early age before focusing on paying off your mortgage because by doing so you have time on your side and your investments will grow much more with the earnings being compounded over a longer period of time. You have to take note, however, that you will need to consider your investments wisely.  If your projected rate of return is going to be lower than your current mortgage interest rate than it is still more beneficial for your to focus on paying off your mortgage first.

5.  Finally, if you work for an employer who is willing to match your RRSP contributions, then it would make more sense to first take advantage of the free money given you by your employer before using all of your excess funds towards your mortgage.  Everybody likes free money!

There are many opinions out there regarding whether or not it’s a good idea to pay off your mortgage quickly.   My husband and I personally worked towards paying off a significant chunk of our mortgage during the first two years of home ownership.  We have slowed it down slightly now, but we have seen a lot of savings in the amount of interest we have had to pay as a result of those lump sums.

Paying down the mortgage certainly makes more sense than keeping thousands of dollars sitting in a savings account earning a minimal amount of interest.   As long as you have set aside enough for a rainy day, and you have taken into consideration the points above, I would highly recommend putting the rest of your idle money to good use by paying off a chunk of your mortgage.

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.

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.