A life preserver for debt drownings

When it comes to financial priorities, most Canadians say that becoming 'debt-free' is at the top of their list - but in the last year, almost half believe they didn't come any closer to achieving that goal. According to a poll of 1,000 Canadians by Manulife Bank of Canada, most Canadians didn't take advantage of low interest rates and make an extra mortgage payment. About 29% said their debt increased in the past year, and another 17% saw no change in their debt levels. If you fall into the above group, here are some tips for devising a debt management plan: 1. Figure out how much debt you have. While it may be painful, the only way to lower your debt level is to know where it stands. Make a list of all the debt you owe - including credit cards, car loans, lines of credit, mortgage debt and student loans. 2. Track and analyze your spending. For some people, it's easy to pinpoint how they got into debt. For others, it's not as clear. Either way, it's important to spend to track your spending. Bring a notebook out with you for a week and jot down everything you buy - from coffees to clothing purchases. If you're more of a virtual banker, comb through your bank and credit card statements from the past month or two to see where your money is going. Experts say most households waste up to 15% of their take-home income. Find out where that waste is, and determine ways to put it towards your debt. 3. Come up with a plan. Keeping your current habits in mind, set an achievable spending and debt reduction plan. Prioritize your debt, with credit card debt as the most urgent to pay off, and car loans, mortgage debt and student loans rounding out the bottom of the priority list. The first credit cards you pay off should be the ones with the lowest balance. If possible, see if consolidating your debt - either to one low-interest credit card, or a home equity line of credit - is an option. 4. Focus on one debt at a time. If possible, see if consolidating your debt - either to one low-interest credit card, or a home equity line of credit - is an option. If it isn't, start making extra payments on the credit card with the lowest balance, while meeting the minimum payments on your other cards. Once the first debt is paid off, take the full amount you were spending on it, and put it towards the next lowest card. 5. Create debt-free habits. Once your debt is paid off, it's important to start saving. A credit card should not be used if you don't have the money to pay it off at the end of the month. Instead, you should aim to have a significant "cash cushion" to pull from when unforeseen expenses arise. If your debt is more than you can manage on your own, please feel free to give me a call - and I will refer you to a professional who can help.

The fixed/variable debate goes on...

A recent article in the Financial Post has stirred up the fixed vs. variable rate once again – hinting that the variable rate's reign may soon be coming to an end. Historically, variable rate mortgages have saved homeowners money, averaging a lower rate than the typical five-year fixed-rate mortgage. With the Bank of Canada's widely-known decision to raise the Prime rate over the next few years, and the bond market bringing fixed rates back to record lows, the tides may be turning. When it comes to deciding which product is right for you, it's best to ignore historic trends and focus on your particular situation. If you're on a tight budget with no room to move, a variable rate isn't right for you because it has the potential to increase up to ten times per year. If you find the qualifying rate uncomfortable – the current posted five-year fixed rate – then again, it's likely not right for you. If you've determined that you can handle the fluctuations of a variable rate, it might be in your best interest to choose that route but pay it at the current posted five-year fixed rate. The extra payments will allow you to drastically cut into your principle, and your budget won't be affected for quite some time – at least until variable rates hit the 5% mark. Another option is the hybrid mortgage – which allows you to split your mortgage into a variable and fixed component, thus taking advantage of the best of both worlds. To truly determine the option that's best for you, however, why not give me a call? There's no obligation to sign on the dotted line, and I'd be happy to uncover the best mortgage for your needs.