With rising interest rates and the stress test, renewing your mortgage can be a stressful time, and you’re likely growing more concerned over your household debt. That’s why we want to share a few tips to help you manage your debt and get back in the black.
Figure out how much you owe
This sounds obvious, but if you own a house, a car, have a credit card, a cell phone, and a line of credit, your debt can quickly get out of control. Gather all your recent statements (print them out if you have e-statements), then sit down and go over everything you owe. Determine which ones are automatic payments from your credit card or your chequing account, and come up with a plan with the following tips.
Figure out which debt to pay off first
You may be renewing at a higher mortgage rate, but it’s still likely among your least expensive debt. Even if you renew at a fixed rate in the high 3% range, the interest on your credit card is probably around the 20% area.
Of course, you still need to be making your mortgage payments, but you shouldn’t be throwing extra money towards your mortgage if you owe thousands on your credit card. It should be a goal for you to pay off whichever debt has the highest interest rate quicker than your other debt.
Use your savings
If you have money sitting in a savings account, put it towards your debt with the highest interest. The money you’re wasting on interest is likely greater than the tiny percentage you’re making in your savings account.
See where you can cut back
Since you’re doing a review of all your debt, try categorizing your spending; break it down as much as you possible. Your shelter costs include things like your mortgage, property taxes, hydro and utilities, and maintenance fees (if a condo) and costs.
The most important thing to look at is your credit card statement (if that’s how you do the majority of your day-to-day spending). Create the following categories:
Alcohol (or cigarettes or cannabis)
If you can think of any other additional categories, then add them to the list. Assign each charge on your credit card to a category so you can see where you’re spending the most. The goal is to identify an area where you can cut back or find a more affordable alternative.
Some banking apps automatically categorize your spending habits, so you should definitely check to see if it’s an option with your bank!
We hope these tips for managing debt help you get started on your climb out of the red!