Eliminate Bad Debt and Take on Good Debt    

Drowning In Debt

More and more Canadians are drowning in debt. The increased household debt in Canada has become a favourite topic in the media. I’m sure you’ve seen many of the statistics in the news lately and read about the stricter mortgage rules the government implicated. One way to move towards financial freedom is to get rid of your bad debt and acquire good debt.

Good debt is money that you borrow to purchase appreciating assets, such as a mortgage loan. It can also work for you and make you money in some cases. The best example is a mortgage loan on a rental property that creates positive cash flow each month.

Another example of good debt would be taking out a student loan to pay for a college education. A college education increases your potential future income.

Bad debt is consumer debt, such as credit card debt, car loans, etc. It’s incurred to make purchases that quickly lose their value and do not generate long-term income. Whenever you make a purchase using a credit card, pay it off in full at the end of each month. Use credit cards as if they were debit cards so you can still build up your credit. If you are swimming in bad debt, make a list of all your consumer debt and come up with a plan to pay it off.

Refinancing your mortgage to consolidate high-interest debts could be an option. It is possible that you’ve built up enough equity in your home to pay off credit cards and consumer loans. As a mortgage associate, I can help determine how much equity is available from your home and how much you can save by increasing your mortgage balance to pay off bad debts at lower interest rates.

Explore the option of using the additional equity in your home to increase cash flow. After you consolidate your bad debts, you may still have equity left over to invest in a secure cash flow producing asset. Deposit that money into an investment savings account.

Once your money goes into the account, never take it out, until you are ready to invest it. Instead of paying interest on the bad debt, you can pay yourself from the interest you earn on secure investments. By applying these financial principals to your life, you will be swimming in wealth.

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