3 Reasons You Need to Reduce Debt Before You BuyApr 23, 2019
Are you already finding it tough to cover all your expenses? If you’re like many Canadian millennials, your debt load is high and your paycheque doesn’t quite stretch as far as you’d like. Adding a mortgage, home insurance and property taxes into the mix could spell disaster, which is why it’s a good idea to reduce debt and get a handle on your finances before signing off on a mortgage contract.
Why debt and home ownership don’t mix
Chances are, you’ve heard the term “house poor” used to describe couples who buy a home out of their price range, only to find they don’t have enough to get by each month.
This is one reason the government stepped in with stricter mortgage rules — stress testing buyers to see how well they could meet their payments, even if interest rates continue to climb. In addition to everyday expenses, consumer debt and bank loans can make it difficult to save money. Adding a mortgage to the equation can make that even harder.
3 reasons to put your debt load before a mortgage
You may be browsing realtor websites and itching to take in some Spring open houses, but it’s worth your while to pump the brakes. Dealing with debt beforehand means:
- You can put money toward milestones and “nice to haves”. Think beyond the mortgage and closing costs. You’re probably going to need furniture, lighting and accessories for your new home. If you move in with a pile of debt, you’ll be forced to look at that ugly carpeting for a lot longer than if you move in with some money set aside for at least a few upgrades. More importantly, without the burden of debt, you won’t need to push back important goals like starting a family, taking that vacation or adding to your retirement fund.
- You’ll have less stress (and better credit). Since money woes are the leading cause of discord between couples, it’s not a reach to say that moving into a new home with debt could cause undue stress on the relationship. On the plus side, looking for a new home without debt means a better mortgage rate, a better credit rating and hopefully, a healthier relationship. Win!
- Mom and Dad can keep their money. The bank of Mom and Dad can be a lifesaver when you really need it. However, your parents are likely edging towards retirement and should be using all their spare money to make sure they’re comfortable during those years. By taking control of your finances, you can avoid asking for a bailout and learn some valuable financial skills along the way. Check out the FCAC website for some amazing financial literacy resources to get started.
The best resources to reduce debt
Ready to get your debt down to a manageable level? Use these tools to help:
- Debt repayment calculator – Plug in your debt numbers and see your options to pay it off quickly.
- Licensed Insolvency Trustee (LIT) – Book a free consultation with an LIT to go over all your available debt solutions. Or, speak with a credit counsellor for budgeting and money management advice.
- Personal finance bloggers – Is your social feed overwhelmed with stuff to buy or places to visit? Hit the unsubscribe button and instead, follow influencers who inspire you to do better. Check out Color Me Frugal for some awesome ways to reduce debt and save a bundle.
Have you started to reduce debt in hopes of buying a home? Share your thoughts with our Twitter community or learn more about paying off debt #LeaveDebtBehind #HomeBuyers #FinancialLiteracy