The Mortgage Store

Who’s the most likely to fall into debt?

According to Where Has the Money Gone?, a report released earlier this year by the Certified General Accountants Association of Canada, there are several demographic groups that are most likely to have credit problems. These are:

• Young people
• Households with children
• Low-income households
• Retired people

What are the early warning signs of debt?

The earliest warning signs of a credit problem include not having much money in your bank account but seeing high figures on your credit statements. As you shuffle money and credit around to try and make ends meet, you may see these additional warning signs, cited by Canada’s Office of Consumer Affairs as indicators of debt. They include:

• Regularly paying bills after their due dates
• Using cash advances on credit cards to pay off other credit cards (you may also be using cash advances for basic purchases, like rent or groceries)
• Asking family and friends for money
• Looking for a second job to make ends meet

How to beat early debt: make a budget

The first step is to create a budget. This will allow you to see how much money is coming in, and where your money is going. You may be able to slice some expenses right away, when you see how much a daily coffee or weekly pizza is costing you. Also, once you create a plan to get out of debt, your budget will be a trusted map to show you the way.

How debt consolidation makes sense

When it comes to consolidating debt, we get the most online inquires in Canada. That's because debt consolidation, also referred to as 'refinancing', is quite common these days. It's not because more people are in debt, it's simply because it just makes sense.

Pulling equity out of your home at today's great interest rates can save you as much as 17% a month in interest charges!

The valuable equity that you may already have in your home can be used to consolidate high interest credit card debts, credit lines and even car loans.

In the past, for a client to consolidate credit card and loan debts, a second mortgage was your only choice. Did you know second mortgage rates can be as high as 19%?

Today, you can top up your existing mortgage to incorporate those debts and remove the debt load without having to take out a second mortgage. Why would you choose that expensive avenue over refinancing at today's 4-year rate of 3.79%*

Getting ahead of debt – reach out to creditors and counsellors

If you are having trouble paying back lenders, it’s wise to contact them. Let them know you’re having trouble and see what arrangements can be made to pay them back. Most creditors would rather get less of your money than not get any at all.

The OCA also recommends speaking with a debt counsellor, especially if you are having difficulty creating an effective budget. "The budget counsellor can also help you find other options if budgeting alone can't solve your financial problems," advises the OCA, who provides a list of credit counselors on their website.

Keep in mind that free credit counseling services are available for everyone. If your only sign of debt so far is a super-high credit card bill and a mediocre bank account, it may be a good idea to get help with a new financial strategy before things really get out of hand.

Beating debt and staying out of it – watch spending and your credit

Once you have your new financial strategy and budget in place, be extremely disciplined when it comes to spending. Your biggest purchases in the months that follow will be paying back debt, so now is not the time to increase your debt load any further. If you’ve racked up a lot of retail debt on things like entertainment, clothes and restaurants, you’ll need to look for more frugal options.  

If you are in very early debt, your credit report may appear ok, but there’s only one way to be sure. Check your credit report from the two major credit bureaus regularly. Not only will this show you what lenders think about your financial situation, but when you start turning your finances around, your credit report will reflect what a good job you’ve done.

Tom Stolecki - Mortgage Agent Lic # M08009118
The Mortgage Store Inc. FSCO # 10500
Cell (416) 873 6660
Fax  (905) 785 3675
Email: Tom@mortgage416.com
website:   www.mortgage416.com