If you need assistance, please call 416-230-3476

Financial Friday #105: Is DEBT really a four-letter word?

Friday, April 1, 2022   /   by Mario Daniel Sconza

Financial Friday #105: Is DEBT really a four-letter word?

Debt seems to be a way of life for the average Canadian and we are bombarded with statistics about it to remind us:


  • Total Canadian household debt $2.2 trillion ($1.5 billion mortgage / $700 billion consumer).

  • Average consumer debt: $20,000.

  • $1.73 in debt for every dollar earned.

  • Average credit card debt: $4000.

 

It’s easy to buy into the "debt-free nirvana" and there are a lot of ideas and advice on how to get there, but what would you have to give up to be debt-free free and how much is your debt really affecting you? Ask yourself these questions:


Why do you have debt?

You can have debt for a number of reasons and some of them are unavoidable — you may have lost your job during the pandemic or had an accident or medical issue that limits your ability to work. However, the majority of debt we see is from people who earn a steady income and for one reason or another have spent themselves into a corner living beyond their means. Did you rack up your credit card buying groceries or buying drinks and restaurant food?


The first step is to figure out if you make enough money to take care of your basic needs (food, housing, transportation). Take a critical look at your spending and separate out the needs from the wants — from the type of house you live in to what you drive to what you eat. You need to determine if it is your lifestyle or just survival that is driving you to debt.


Cost of debt?

Creditors don’t want you to think about the cost of debt and with very low interest rates on some debt, it can be easy to ignore. A mortgage at under 3% is a good deal and making huge lifestyle sacrifices to pay it down early doesn't make sense for a lot of people. Home equity is also a great source of low-cost financing for things like education or investing.


Credit cards, car loans, and lines of credit are another story. You need to investigate just how much interest you are paying every month and whether or not it is as cheap as you thought. Minimum payments, low monthly payments, interest only payments, cashback offers, do not pay until later deals, and excessive credit card limits are all very conducive to keeping you in debt forever by duping you into thinking you can afford it.


Does your debt keep you awake at night?

Not all debt is bad – are you awake at night analyzing the merits of a fixed vs variable mortgage or your latest credit card balance that is 95% entertainment and recreation related? If you have come to the point where your debt is constantly weighing on your happiness and enjoyment of life then you need to take action. This could mean a number of things: downsizing your home, selling your car, giving up a vacation, or simply tracking your expenses and cutting back wherever you see fit.


Is it worth the sacrifice? The slipperiest of all slopes!

There are opportunities and experiences that may never come by when you are older or richer, so some degree of "you only live once" (YOLO) is required. You won’t forget the memories from that amazing lake cottage you splurged on for a family weekend, but the car you drove to get there isn't important (no one will remember 20 years from now and there are plenty of shiny new cars every year!). Make sure to choose your "YOLO moments" carefully and prioritize what really matters when making spending decisions.


Resources


Mortgage "must-knows" from a finance expert

This 7-minute video hits all the big mortgage questions from a personal finance perspective with amazing clarity and very practical advice. If you are renewing your mortgage or just want to get up to speed on mortgages in Canada, check this one out.


Options for claiming work from home expenses on your tax return

If you work remotely or the pandemic kept you working from home for part or all of 2021, you can claim expenses and reduce your taxes. Check out the options for calculating your deduction and what you need to keep for proof... just in case!


Investors out $10 million as Saskatchewan real estate firm collapses

A tale of "make sure you do your homework" as120 investors who gave unsecured loans of between $50,000 and $500,000 to the Epic Alliance group of companies in Saskatoon are left in limbo as to the fate of their investment.


House rich and cash poor — Should I sell, rent & retire?

A lot of people find themselves in this situation with the huge run-up in home values, but is selling a case of short term gain for long-term pain?


BOC eyeing aggressive rate hikes as "household finances in good shape"

The 0.25% rise in interest rates in early March looks to be just the start of things as a 0.5% hike in April appears more likely — along with more increases throughout 2022.

eXp Realty of Canada
Mario Daniel Sconza
4711 Yonge St 10th Floor
Toronto, ON M2N6K8
416-230-3476

Information is provided exclusively for consumers’ personal use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Data is deemed reliable, but is not guaranteed accurate by the MLS®.
Information is provided exclusively for consumers’ personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Data is deemed reliable, but is not guaranteed accurate by the MLS®. Copyright 2022 Last Updated October 2, 2022
This site powered by CINC: www.cincpro.com