It is time for serious debt management
During the past few days, the national media focussed on a report by the Vanier Institute of the Family that was published on February 16, 2011, which stated that Canadian average household debt has hit the six-figure mark for the first time.
The Globe and Mail noted that the average household debt figure at the end of 2010 was $100,879, with the debt-to-income ratio at a record 150 per cent. In other words, for every $1,000 Canadian families earn after tax, they now owe $1,500.
Mortgages account for two-thirds of that debt at $63,000 per household. The other third is made up of personal loans and credit card debt.
For the 55 per cent of Canadian households with mortgages, the average debt figure is $171,500.
These households are likely to be the very vulnerable when, as anticipated, interest rates rise and housing prices fall.
Managing debt is not an easy task.
Often my clients ask me, “Should I use the equity in my home to consolidate my debts?”
Frankly, there is no simple yes or no answer to this question. However, if you have combined credit card and loan debt that is more than $20,000.00, you could likely save money every month by consolidating these debts with your mortgage loan because interest for credit card accounts and loans are usually charged at considerably higher rates than mortgage loans.
One recommendation that I make to my clients is the “Comfortable Payment”. I encourage them to decide for themselves how much they can afford to pay every month and that’s the amount that we set for the payment for the new consolidation mortgage loan.
Consider a “financial check-up.”
Whatever your lifestyle, whatever your income, whatever your assets, it’s a good idea to have an annual “financial check-up.” Whether you do it yourself or enlist the help of a financial counsellor, it’s an exercise that is worth doing.
By analyzing your income, your assets and your liabilities, you can determine whether or not you are earning enough money to comfortably pay your debts. Financial difficulties can often be eliminated by paying less for your liabilities rather than earning more income.
If you have debt, the most useful strategy is as simple as consolidating your credit card balances, loans and mortgages.
Mortgage interest rates today are still the lowest that they have been in decades for some terms. Credit card and loan interest rates on the other hand are still fairly high. If you’ve been a homeowner for at least the past three years, chances are that the equity in your home has increased. This equity can be put to good use for consolidating debt at a low, low interest rate.
Furthermore, the elimination of credit cards, loans and credit lines helps you if you’re planning to sell your home and buy again.
Consolidation of debt, saving on interest charges and keeping more of your earned income are all part of a formula for financial security.
DOMUS Financial can help
If you are over-burdened with debt and wish to discuss your debt-relief options, we would be pleased to assist you. All inquiries will be held in the strictest confidence.