If you’re dealing with debt this summer, you’re not alone. As inflation is causing the price of goods to skyrocket and interest rates to rise, many Canadians are likely feeling a bit suffocated by their payments and costs of living these days. Household debt can feel overwhelming, but many borrowers have options for getting a handle on their expenses. Often, the hardest part is knowing where to start. Here are some ideas to help you fight the heat of your debt this summer season!
Refinance your mortgage
Refinancing your mortgage is a common way for people who are dealing with debt to stay afloat. Refinancing allows you to readjust your mortgage terms or access some of your home’s equity, so you can use that extra cash flow to make your debt payments. This might mean securing a lower interest rate, or extending your amortization period so your monthly payments are lower. When you’re a homeowner, your home can provide you with lots of opportunities to deal with debt this summer. Refinancing doesn’t suit every situation, as it should be reserved for people looking to stay in their homes long-term and who have already built up some equity. You can speak to a mortgage professional about your options for refinancing.
Try a budgeting app
Depending on your debt, you may be able to make a lot of progress by using a budgeting app. Budgeting apps help you clearly outline your income and your expenses, both essential and non-essential. From there, you can visualize your money and earmark it for certain expenses. Some apps, like Goodbudget, let you split your money into envelopes to spend out of, so you have to dedicate a certain amount of funds to specific expenses, and stop spending once that envelope is empty. Budgeting apps don’t solve your debt, but they can help you organize your money to see if there are any areas where you can cut out extra spending. You can review some of our favourite apps here.
Find your high interest debt
If you have several forms of debt, odds are, you’re also dealing with multiple interest rates. To best handle your debt this summer, you can order your debts from highest to lowest interest rates. The longer you go without paying your high interest debt, the more you will owe. You should be sure you make consistent payments on these debts every month. This will help you avoid extra fees and charges. However, don’t exclusively focus on high interest debt and ghost your other debt payments! Our next tip focuses on why this is not the best move for you.
Pay the minimum amounts
Ideally, we like to pay more than the minimum on everything. It takes away our stress, and it reduces the amount of interest we owe over time. However, sometimes this just isn’t possible when you’re dealing with debt. You may not have the luxury of making all your payments in full, so what should you do? Should you just make payments on one of your debts to clear it out, or should you split your focus evenly between all your payments?
While we just mentioned prioritizing high interest debt, we will say you should always pay the minimum amount for all your debts. You can certainly turn to your highest interest debt first to ensure you pay the minimum on that, but don’t ignore your other debts completely. Lenders will find you, and you can’t neglect your payments without them noticing. Late payment fees can cause your interest rates to rise even higher, and will damage your credit score as well. If all you can do is pay the minimum on your debts, do that. This will help keep your credit score stable, and you will avoid extra fees and rate increases.
Delay adding new debt
If at all possible, try to delay adding on new debt while you’re dealing with your current debt this summer. There are always opportunities to get a new credit card, a car loan, a home renovation, or a line of credit, but it might not be the best time for you to take advantage of these opportunities. As tempting as it can be to increase your credit limit or buy a new vehicle, take a step back. If these aren’t absolutely necessary right now, turn away from them until you have a better handle on your debt. The last thing you need is to add new debt to your pile, especially if it’s not critical. Of course, sometimes new debt is unavoidable. If your car dies and you need to buy another one, you can do so. The key here is to differentiate between what’s essential and what isn’t while you’re working through your debt.
Debt can be challenging, but there are different ways to combat it. Canadian homeowners in particular can take advantage of their property to deal with debt, if necessary. As the economy rapidly changes, this is a tricky time for many. However, one thing that hasn’t changed is our commitment to you! As mortgage professionals, we can guide you through whatever process is necessary to get you on track to tackle your debt.
If you have any questions about your mortgage, get in touch with me!