Don’t Hit Your Debt Ceiling Because of Your Mortgage

January 11, 2018 Leave a comment

In cities where housing prices are high, like Toronto, Vancouver and surrounding areas, buying a home is extremely expensive. Fueled in part by the “Fear of Missing Out,” home buyers are routinely maxing out their mortgage debt, just so they can get into the market.

“The problem is that substantial mortgages are pushing many people right up to their debt ceiling. The downside of taking out a large mortgage used to be about being house poor. Now maxing out your mortgage is causing people to live dangerously close to their debt breaking point in a paycheque- to paycheque environment with little or no cash savings,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

Here are some ways to keep clear from your debt ceiling by maintaining mortgage and other debt low.

Set your housing budget and stick to it

In a hot market that is characterized with bidding wars, it is normal for house hunters to suffer from buyer’s fatigue as they deal with the emotions of trying to buy a home and lose out multiple times.

“For the sake of your budget and your financial health, you need to let your head rule your heart when it comes to buying a home. It can be tempting, especially if you’ve been looking for a home for a while, to push your budget up, just so you can secure a house,” says Schwartz.

According to a study from HSBC, 42 per cent of buyers ignored their budget and spent more than they intended on their home purchase. Doing so may seem like a good idea at the time because you secure a home, but the more mortgage debt you assume, the more vulnerable you are.

You need to establish a budget that will keep your mortgage payments manageable and take into account the possibility of rising interest rates. You also need to have the cash flow to be able to put money into savings. That means staying well below your debt ceiling.

Get rid of high interest debt

It is preferable to be debt free when you buy a home, but that isn’t always possible. What you should do though is get rid of your high interest debt as a minimum before you purchase a home. Your credit cards and lines of credit are also vulnerable if interest rates go up, which will push your debt ceiling higher.

Pay debts off, consolidate on a lower interest card, or get a consolidation installment loan.

Don’t rely on credit to cover costs

You need to consistently spend within your means. That means not using credit as a way to extend your budget. Don’t rely on credit as your emergency fund or as a means to tend to your housing repairs and maintenance.

Find ways to cut your housing costs

Your mortgage isn’t the only cost that you’ll need to manage as a homeowner. In addition to repair and maintenance, you’ll need to spend money every month on energy and water bills. Get in the habit of conserving water and energy wherever you can, which will greatly reduce your bills.

Discover your individual score to help assess your current financial fitness level by taking a quick Financial Fitness Test

For more information on this and other financial literacy and credit issues, visit the Money and Finances – Canada.ca and iiCanada Financial Literacy resources page OR the Jamati Budget Lounge, a web‐based financial education centre that has been set up exclusively for our Jamat through Consolidated Credit Counselling Services of Canada, a national non‐profit organization. The Jamati Budget Lounge offers unbiased debt‐counselling service and offers alternatives to help people get their debts under control. In addition to offering solutions to alleviate and eliminate debt, the site also focuses on financial education and understanding. Strategies include teaching basic, but vital concepts such as how to: budget; understand credit; and manage money. The toll‐free number 18443293834 has also been set up for our Jamat to speak to a trained credit counsellor from Consolidated Credit in English, French or Farsi on a confidential basis.

Although all communications will be confidential, any connections via the Jamati Budget Lounge or via the toll‐free number to Consolidated Credit will be tracked for statistical purposes.

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Financial Literacy

December 22, 2017 Leave a comment

What is Financial Literacy?

Financial literacy is your ability to understand basic finance and a range of different financial topics. Many people informally gain financial literacy throughout their life as they learn different aspects of day-to-day finance. As a result, most people improve their financial literacy by trial and error and this means they are only learning something new about finance when they have an issue or need to address a financial need.

Why is Financial Literacy Important?

Learning by trial and error when it comes to finance is dangerous, because you are putting your money at risk. If you get something wrong, you may face problems paying your bills, covering monthly expenses and making sound investments. You may also damage your credit, which can prevent you from getting a new home, buying a car, and reaching your other financial goals.

A much better strategy is to take steps to improve your financial literacy now. This gives you time to really understand financial topics without the urgency of having something you need to do. You can take time to appreciate the importance of personal finance and make more educated choices about how to achieve your goals.

Improving Your Financial Literacy

Below you’ll find a description of four essential financial literacy topics. If you would like to dive deeper into our educational material, check out our Financial Advice section.

  1. Budgeting

Accurate household budgeting is the foundation of a healthy financial outlook. Some consumers try to keep everything organized in their head, but many find that writing things down, setting budget goals, and tracking spending are essential parts of financial stability. An effective budget strategy doesn’t limit you. Instead, it helps maximize your financial potential so you can achieve your financial goals.

 

What You Gain with a Budget

What You Lose with a Budget

A complete picture of your monthly spending. Stress over how much money you have at any given time in the month.
An easy way to measure your debt-to-income ratio and the ratio of your monthly credit card payments versus your income. The increased likelihood your debt will begin to exceed what you can afford at your income level.
The ability to make savings a line item in your budget, which increases your chances of actually saving effectively. Leaving savings as whatever you have left over at the end of the month.
A means to see how much of your income goes to various types of expenses. Confusion over where all of your income goes in any given month.
The ability to make accurate financial assessments prior to making large purchases. The need for guesswork when it comes to making large purchases.

What Financial Experts Say about Budgeting

In addition to saying that you need a budget, financial experts agree you should check your budget every six months. As well, you should review your budget any time there is a significant change in your income or your expenses. If you get a new job with a different salary, move to a new house with new utility costs, or buy a new car with different gas mileage, you may need to review your budget so it reflects your real spending.

Budgeting Resources from Consolidated Credit

You can use the following resources to help you create and manage your household budget:

  1. Saving

Savings is important – far more important than the priority most consumers give savings as part of a stable financial outlook. In order to be financially successful, you need to save money and have an effective strategy in place for how and where you save. With the right strategy, you can build a healthy savings plan, no matter your income level or social standing. Savings will help you plan for your family’s future and reach your financial goals.

Developing an Effective Saving Strategy

Building savings effectively doesn’t require large sums of money. It only requires a commitment to saving consistently. This allows you to build savings over time even with limited cash contributions.

If you have an account that offers 5% interest (yield), in ten years…
$/day $/week Yield
$1 $7 $4,720
$2 $14 $9,440
$3 $21 $14,160
$4 $28 $18,880
$5 $35 $23,600

 

If you have $1,000 to save per year ($19.20 every week)…
Interest Rate 5-yr. Yield 10-yr. Yield 15-yr. Yield 20-yr. Yield
5% $5,525 $12,578 $21,578 $33,065
6% $5,637 $13,181 $23,276 $36,786
7% $5,751 $13,816 $25,129 $40,995
8% $5,867 $14,487 $27,512 $45,762
9% $5,985 $15,193 $29,361 $51,160
10% $6,105 $15,937 $31,772 $57,257

 Savings Resources from Consolidated Credit

The following resources can help you develop an effective saving strategy and find more savings in your household budget:

 

  1. Debt

Not all debt is bad debt and debt can be an important part of a healthy financial outlook. It allows you to build credit, purchase assets such as a home or car, shop online, and achieve your financial goals. Without debt, you could only use cash to make purchases on the spot. The key is to use debt strategically and manage your debt in a way that doesn’t put your finances at risk.

Do You Control Debt or Does Debt Control You?

The most important aspect of dealing with debt in a healthy financial outlook is to maintain control over your debts. When debt is in balance with your income and your budget, it provides certain advantages in your personal finances:

When Debt is in Control When Debt is Out of Control
You enjoy lower interest rates on new debts, including your mortgage and car loan. Your interest rates are higher, and your debt costs you more.
You save money on interest payments. You pay more money in interest charges.
You can structure your debts to pay them off faster and more effectively. You struggle to keep up with your bills.
You have money left over in your budget for an effective saving strategy. You reduce your cash flow and lose the ability to save over time.
You have better credit scores. You have bad credit.

Debt Resources from Consolidated Credit

The following resources can help you manage your debt effectively so you can avoid financial distress caused by debt:

 

  1. Credit

Credit and your credit scores are important parts of your financial outlook. Excellent credit allows you to take advantage of the best offers on credit cards and get the lowest interest rates on things like your mortgage and auto loan. Bad credit means you face higher interest rates and will pay more money over the life of your debts. Even having no credit if you avoid using credit cards and taking on debt does you a disservice, because you may be denied for apartment rentals and car rentals, as well as employment in certain industries.

Understanding Your Credit Scores

Your credit and credit rating are both largely dependent on your credit scores. The following chart shows how your credit scores are calculated:

Credit Resources from Consolidated Credit

The following guides will help you develop your credit profile so that you can use credit effectively and maximize your credit scores:

Discover your individual score to help assess your current financial fitness level by taking a quick Financial Fitness Test

For more information on this and other financial literacy and credit issues, visit the Money and Finances – Canada.ca and iiCanada Financial Literacy resources page OR the Jamati Budget Lounge, a web‐based financial education centre that has been set up exclusively for our Jamat through Consolidated Credit Counselling Services of Canada, a national non‐profit organization. The Jamati Budget Lounge offers unbiased debt‐counselling service and offers alternatives to help people get their debts under control. In addition to offering solutions to alleviate and eliminate debt, the site also focuses on financial education and understanding. Strategies include teaching basic, but vital concepts such as how to: budget; understand credit; and manage money. The toll‐free number 1‐844‐329‐3834 has also been set up for our Jamat to speak to a trained credit counsellor from Consolidated Credit in English, French or Farsi on a confidential basis.

Although all communications will be confidential, any connections via the Jamati Budget Lounge or via the toll‐free number to Consolidated Credit will be tracked for statistical purposes.

Tradelinx Pre-Apprenticeship Program

September 14, 2017 Leave a comment

tradelinx

Energy Savings Program for Homeowners

September 14, 2017 Leave a comment

As the temperatures begin to decline, some families maybe looking at ways to reduce energy consumption within their households. The good news is that there are free programs that may make a significant difference with energy expenses.

  • Enbridge has launched a free program for low-income customers to improve the comfort and energy efficiency of their homes and reduce their gas bills. Qualifying homeowners can enjoy savings of up to 30% of your energy use and lower energy bills.
  • The Save on Energy HOME ASSISTANCE program for low-income customers to improve the comfort and energy efficiency of their homes. Qualified homeowners can take advantage of LED light bulbs, low-flow showerheads and more.

All members of the Ontario Jamat are strongly encourage to review the qualifications for both programs and take advantage of the savings. 

Achieve Financial Security

September 1, 2017 Leave a comment

If you are dealing with debt and are living paycheque to paycheque, you tend to focus on just getting by in the moment. However, it is your actions in the present moment that can help you achieve financial security for the future.

“What does financial security sound like to you? Living debt-free? Having a nest egg of savings to rely on? Having healthy cash flow that lets you not live paycheque to paycheque? Not having to manage the stress that goes along with debt? All of these are positive lifestyle attributes, which may not be what you are experiencing living with debt,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

“Visualize what your picture of financial security looks like and set that as your goal. By changing your approach to spending and saving today, you can build the foundation for financial security for tomorrow,” says Schwartz.

Stop Using Credit

The very first step to achieving financial security is to stop the debt pile from growing. In addition to developing a plan to pay down your debt, change your financial direction by adapting a cash-based lifestyle. That way, all the money that you put down on your debt can work to erase, not reduce your debt.

Spend Well Below Your Means

On paper, it’s simple. Your household budget dictates how much you are able to spend on expenses without having to go into debt. However, in daily living, applying that budget can be more challenging, especially if you subscribe to the “buy-now-pay-later” mentality.

In order to achieve financial security, not only do you need to spend within your means, you need to create a gap of wiggle room to cover you in the event of unexpected expenses or job loss. That means spending well below your budget-driven max.

Some ways to accomplish this are to move towards more simple living. Buy a used car instead of a new car. Eat at home instead of the restaurant. Downsize your home and save on your mortgage/rent and operating costs.

Smart Saving Strategy

You may already be aware that having emergency savings on hand is a crucial part of a debt repayment strategy. But as you look towards creating financial security, you need to be a little more specific with your savings goals. You need to contribute to your emergency savings fund every month, but also diversify your savings into something longer term as well- like your retirement.

Every dollar that you save for your long term future means one less dollar that you might need to turn to debt to cover expenses in your golden years. It may seem like retirement is a long way off, but you can benefit over the long term from investing your money today.

Saving for your retirement also has more immediate benefits which can help you create financial security. You can withdraw from your RRSP (Registered Retirement Savings Plan) to use as a down payment for a home. You also get a tax deduction for your RRSP contributions, which you can use to pay down debt even more or build up other savings.

Get Educated

Create your own path towards financial security by becoming aware of the options that are available to you. The more you know, the more you can take advantage of tools that are available to you, which will only benefit you

Discover your individual score to help assess your current financial fitness level and get useful information. Financial Fitness Test

For more information on this and other financial literacy and credit issues, visit the IICanada Financial Literacy Resources page or the Jamati Budget Lounge, a web‐based financial education centre that has been set up exclusively for our Jamat through Consolidated Credit Counselling Services of Canada, a national non‐profit organization. The Jamati Budget Lounge offers unbiased debt‐counselling service and offers alternatives to help people get their debts under control. In addition to offering solutions to alleviate and eliminate debt, the site also focuses on financial education and understanding. Strategies include teaching basic, but vital concepts such as how to: budget; understand credit; and manage money. The toll‐free number 1‐844‐329‐3834 has also been set up for our Jamat to speak to a trained credit counsellor from Consolidated Credit in English, French or Farsi on a confidential basis.

Although all communications will be confidential, any connections via the Jamati Budget Lounge or via the toll‐free number to Consolidated Credit will be tracked for statistical purposes.