Do you find yourself frequently paying bills after their due dates, bouncing cheques or receiving
calls from collection agencies? These can all be warning signs of debt becoming unmanageable.
The good news is that there are steps you can take to get your finances back on track. Here we
focus on using the equity in your home. This guide is built to help you map out a plan for taking
control of and managing your debt. It provides you with key steps to take to refinance your
mortgage and subdue high interest rate.
Step 1: Make a Budget
Get a handle on your finances by taking time to create a budget. A budget is like a roadmap for
your finances: it tells you how much money you have, where it comes from and where it needs
Making a budget is the most important step in taking control of your finances.
To build a budget, first identify how much money you have coming in and how much of it is
going out. Be sure to keep track of all your debts, such as loans, credit cards, lines of credit,
and your expenses. Your expenses should include all living expenses, such as your mortgage
(or rent), utilities, groceries, and insurance. Be as detailed as you can!
Step 2: Check your credit health
Your credit report and credit score are two of the main tools that lenders use to determine
whether or not they are willing to lend you money. They want to know if you will be able to pay
your bills on time.
Your credit score goes up and down based on the information in your report. For example:
making regular payments, on time, will gradually make your score rise, but missing payments
will make it drop. In Canada, credit scores range from 300 to 900. Scores of 600 and over are
considered to be good. Scores of 750 and over are generally considered to be excellent.
If you have a good credit score, you may be able to borrow money at a lower interest rate and
pay less interest over the long term. Having a poor credit score can make it difficult to qualify
for loans, credit cards, leases or mortgages, and sometimes result in higher interest rates. Your
credit history can also affect your eligibility for some debt repayment options.
Step 3: Map out a plan
Not sure where you should focus your efforts to start taking control of your debt? There are
many strategies you can use to manage debt and start paying it off.
One option is to start by paying down the debt with the highest interest rate first. This means
you’ll pay less interest over time and will reduce your overall debt sooner. Another strategy is to
start paying down the debt with the lowest balance. Knocking off a few debts quickly can help
build momentum and motivate you to continue.
Look for opportunities, for example:
- Are there opportunities to consolidate loans (also known as debt pooling)?
- Equity in your home is the least expensive money you will find.
- Are you able to negotiate your debt with your lenders/or creditors?
- Are you working closely with your mortgage lender to find the best solutions for your budget?
- We can help!
- What kind of approach should you take with credit cards?
Do your research! There are some less-than-reputable companies in the marketplace who may
try to attract your attention with promises to help erase your debt and solve financial problems.
Know your rights and check with your provincial regulator for more information on different
debt management solutions.
Sept 4: Take control, take action
Please don’t delay! I wish I could tell you how many people call for help to refinance their debt
but find out that they are a month or two too late! Their ratios are no longer in line and the
debt has swollen to the point where the lenders no longer have the appetite to help. Don’t
Delay! High interest credit is a killer to cashflow and to a proper financial strategy. Mortgages
and refinance can be a strong tool in your belt against high interest. We’ve talked in the past
about how Canadians are feeling overwhelmed… Are you? Have questions? Need a little advice?
Reach out! Let’s get started!