Let 2012 be YOUR year to pay off debt and build your savings!
“How can I afford my debt?”
You might think that’s a funny question to ask yourself, but you really should. More specifically, you should question whether or not you can afford your debt if a major life event (such as a job loss, unexpected medical situation, pregnancy or unforeseen major home or car expense) were to happen.
“For most people, it only takes a month or two of unemployment, or major unplanned expenses to throw their finances into turmoil,” noted Betsy Elliott, Credit Counsellor with 1000 Islands Credit Counselling. “And with (interest) rates being so low right now, borrowers need to keep an eye on what interest rates are doing.”
She adds, while Canada’s interest rates have been at historically low levels, that fact can give people a false sense of security. “Many lines of credit and adjustable rate mortgages have interest rates which go up or down depending on the prime lending rate,” Elliott explained. “A sudden increase in interest rates can lead to a big jump in monthly expenses.”
While there might not be anything you can do to change how much your mortgage is or how much you’ve borrowed from a flexible line of credit, what you can do is to try to pay off consistent amounts when times are good.
When it comes to repaying debt, Elliott recommends that individuals focus on paying down their debts with the highest interest rates first as opposed to debt which may be of a larger overall amount but at a lower rate of interest. “This is a common mistake,” Elliott notes. “By paying off higher interest debt first, you can save yourself a lot of money in the long run.”
Many Canadians seem to view savings as something unachievable. Not so, says Elliott. “Just about anyone can – and should – be saving,” she says. “I think a lot of people get scared off from the idea of putting money away because they think they can’t afford it.”
In order to begin saving, Elliott recommends you start small. “If you begin to put away small amounts regularly, you probably won’t even notice it,” she notes, adding that the amount you save should be increased slightly as you can afford to put more away.
Other successful savings tips which work, notes Elliott, include having an automatic deposit set up to withdraw money from your regular account into one which you can’t access by debit card, and to check out the range of savings tools (including Registered Retirement Savings Plans (RRSPs), Tax Free Savings Accounts (TFSAs) Guaranteed Investment Certificates (GICs) or individual savings accounts.
One thing that any saver should be mindful of, states Elliott, is not to save more than is manageable. “If you need to withdraw money from the savings account to pay essential expenses, then it defeats the purpose of saving in the first place,” she stressed.
For help to get on the right track of savings and debt management, contact 1000 Islands Credit Counselling today. We have been serving the Brockville area since 1996 and now serve all of Eastern Ontario including Ottawa and Kingston. We are a not-for-profit organization which is part of the Employment and Education Centre and all our services are free, compassionate and confidential.
For more information, log on to www.1000islandscreditcounselling.com or call Betsy at 1-800-926-0777.