In a recent Globe and Mail report Canadians owed $1.68 for every dollar they made in income and that most surveyed said they were a mere $200 away from entering the hurt locker.
Household credit-market debt, which includes mortgage loans and consumer credit, jumped 2% in the second quarter, while disposable income increased 0.5%. Total household credit-market debt reached $1.97 trillion, with $1.29-trillion in mortgages and $585-billion in credit cards, car loans and other personal loans.
…and this from Equifax “ The average Canadian now owes $22,081 in consumer debt, a figure that doesn’t include any mortgages.”
We are a society swimming in an ocean of debt. Without stating the obvious try and avoid debt like the plague. All you are doing is spending money you don’t have. You have a credit card with a limit on it but you don’t have the money. What you have is borrowing power and power in the wrong hands can be deadly to your financial health. The main problem here is when you use your credit card and have no idea what you owe until the bill comes in it’s really quick to fall behind and never pay it off.
But now that you’re in debt let’s look at some of the debt you may have and what are the best ways to get out of debt or at least make it manageable to live and eventually eliminate it altogether.
In her just released new book ‘The Debt Free Lifestyle” Christine Conway lays out a strategy that all Canadians can follow.
The book is crammed with useful tips for anyone who feels pinched as they try to handle mortgages and credit card payments. Among other things, Conway suggests people should spend 15 minutes a week on their budget, pre-pay mortgage payments, and pay off the most expensive debts.
You can read more here
New Car Debt
Never buy a new car, like never. I recommend you don’t because that’s what I do. The only new car we ever bought as a family was on my wife’s employee discount which was too good to turn down. That was 2010 and we still drive that vehicle now with 150,000 kms on it. New vehicles depreciate 10% as soon as you head home from the dealership and another 10% every year while you own it. If you have fallen into this trap as many do then SELL the car or worse yet your truck. I see so many people driving trucks just running errands around town. Unless you can write off expenses against a business, you have no reason to own that big Ford F150. Pay off the remainder of the loan with the proceeds and cut your losses.
You must make this sacrifice if you are ever going to get out of debt. Look for some cheap 10-15 year old clunker that you can buy outright with cash. Better still drive less in the nice summer weather or buy a bike. This may not be what you want to hear but if you’re ever going to slay the debt dragon, SELL your ride if you owe money on it. Your life will be greatly enhanced by no ugly new car payments and think of all the fresh and air and exercise you’ll get in the process.
Many people out there will tell you that this is good debt. WRONG! There is no such thing as good debt. Most, if not all debt is bad and the majority of us owe too much money. I also hear this all the time, “Well you have to live somewhere, don’t you?” Ya, you do but that doesn’t mean you buy a house. You need a place to live, doesn’t mean you have to own.
Houses are way overpriced at the moment. It’s what’s known as a seller’s market right now. Prices have been driven up to unsustainable levels fueled by cheapo credit and the lowest interest rates in a generation.
This won’t go on forever and we’ve already heard from the new prez that rates have to go up. This will make the cost of borrowing more expensive and all those people who would be hooped by a $200 jump in their monthly will go under.
So if you’re already in mortgage debt what can you do? For us what worked best was to automate our payments and pay bi-weekly. You don’t eliminate mortgage debt this way because it’s just too big a nut to crack. What you do is manage it better and save at least one mortgage payment a year paying off your mortgage quicker as the years go by.
Once our mortgage significantly came down we transferred to a HELOC (home equity secured line of credit). This further allowed us to accelerate our monthly payments with no restrictions on making lump sum payments. It also gave us more flexibility to meet our overall debt obligations. We could pay a lot one month or just pay the minimum. You can also negotiate a better interest rate if you’re not on the bank’s naughty list. Implement this strategy to eliminate your mortgage from your life as quick as you can.
Unnecessary Bank Fees You Haven’t Heard Of
The other thing that banks suck you into doing is blending your taxes into your mortgage payments. You never notice it and most people just go right along with it.
But here’s what happens, the bank pays the municipality in full for your taxes at the beginning of the year and then takes it out of your account. You don’t have a tax account at the bank, so they create one for you. Because you don’t have any money in the tax account the nice people at the bank created for you, you go into overdraft. As the monthly tax installments are withdrawn by the bank so goes your tax liability. They don’t do this for free so you are charged overdraft fees. Nice slight of hand eh?
I would advise anyone who owns a house to pay their own taxes if they don’t already unless you like paying unnecessary bank fees. This will save you hundreds of dollars per year you can now steer towards your mortgage payments. You will have to do this at the start of the year, so hurry up!
Would you like to be Debt Free Forever? read what others are saying about it here
The accumulation of STUFF! We are so stuff and things driven it’s actually criminal. As if that’s all there was to life than to buy and shop. This is an area where a lot of people get into trouble. We spend money we don’t have and the credit card bill mounts. At one point in my life I had accumulated 4 Mastercards, 3 Visa cards and 2 lines of credit at different institutions. Why? Because the system let me. I used to pick up applications and randomly fill them out and mail them off. It was unbelievable the amounts that were approved. The problem is not that you have them it’s the abuse that follows.
Once you have abused those credit limits and can’t keep up with payments you need to take stock in what you owe. Start with the most debt and highest interest card first. Pay them off before you pay anybody else. It’s painful but if you want to eliminate those ugly payments you have to start where you’re paying the most interest.
As we enter the gift giving season remember there are ways to get out of debt and the best way to get out of debt includes;
- sell your new car if you own one and can’t keep up the payments
- buy a used car and a bike for the summer
- pay your own municipal taxes – tell your bank at year end and then go to your local town office for paperwork
- switch your mortgage to bi-weekly payments
- as soon as possible convert it into a HELOC for more flexibility
- pay off the highest credit card debt first or any high interest consumer loan
If you would like to purchase Christine’s new book you can do so here
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