Three years in a row has consumer debt reduction been the #1 resolution for Canadians. This according to a poll conducted for CIBC. The fact that there is no positive change here begs the question: What are we doing wrong? If we can’t clarify the reasons – we won’t be able to make the changes necessary so that this time next year we aren’t just going around the merry-go-round one more time.
Unsecured Credit – Unrestricted Access
Unlike mortgages in Canada which have been under tighter lending restrictions four times over the last two years – access to unsecured credit (ie. credit cards) goes unchecked. Where this is a concern is when a family has gotten in trouble financially in the past, they had the option of a low cost debt consolidation to bring high interest credit card debt under control. Unfortunately, as access to unsecured credit has not received the same scrutiny as mortgage debt, this leaves families holding high interest credit debt for longer periods of time. Of course, this not only makes the family more susceptible to financial distress – it wears down their credit scores making them a prime candidate for financial disaster with very few options to turn things around.
Wrong Focus = Negative Result Every time
As long as Canadians focus on debt reduction rather than on income creation we will be in for more of the same. We will be focusing again one year from today on reducing the same debt that we focused on this year. Conversely, if we focused on income creation this year – the additional income generated would pay off the extra debt incurred. And here is the kicker – that additional income you created this year will most likely be there next year to assist you in moving further towards your financial goals. Outside of the usual ways to make more money, here are a couple of areas to consider this year to increase your family’s bottom line:
Income Increasing Id
1) Stop paying down your mortgage quicker! Never thought you’d hear that one from a mortgage broker. With interest rates at 60 year historical lows, it is not the time to pay off debt held at 3% if you are holding a balance with an interest rate of anything more. Focus those extra dollars every month on the highest interest debt you have and pay it down to $0 with a bullet. Request to have your payment frequency set back to monthly today to accomplish this in one simple step.
2) Re-Amortize your mortgage! Say for example you started with a 25 year amortization and are currently at 17 years, you can request of your mortgage holder to reset your amortization back to the original amount. On a 400K mortgage, you will put another $609/month into your pocket following this example. If applied to a high interest credit card – you could pay off a 5K bill in just over 8 months. If this amount was being charged at 30%, the interest paid over this time would be $1,000 versus just $100 in the mortgage. There is another $900 in your family’s pocket rather than the banks.
3) Don’t sign you mortgage renewal! Did you know that over 50% of bank mortgages renew at posted rates? On a 250K mortgage, it will cost you an additional $14,000 over 5 years in interest alone. In 2013, your family would be giving another $2,800 to your bank by not taking the simple step of having your friendly neighborhood Mortgage Broker look over your situation to determine your best mortgage.
Don’t Be A Statistic – This Is Your Opportunity
I know there are a lot of Canadians out there right now feeling quite frustrated with what they feel is a lack of options in their financial outlook. Whether it is high interest unsecured debt, a negative outlook, or the media raining on your day – don’t let yourself become a statistic. You have a whole new year in front of you to learn how to get out of debt and move your financial house in a new direction. Please take the time to connect with me this year at our three free monthly events and get yourself on the right track to increase your income and make that debt a thing of the past.