September 30, 2013
The Bank of Canada earlier this month kept its key interest rate at an ultra-low one per cent – the 24th time in a row the bank has kept its levels at rock-bottom rates.
But as the fourth anniversary of the bank dropping its rates to super low levels comes up soon, the rates are triggering some negative effects, though many economists agree the move was crucial to keep the country’s economy in relatively good shape during years of economic turmoil.
Despite low rates, it might be time to think about ways to cut your debt.
This spring, think-tank the C.D. Howe Institute argued the low rates are sending consumer debt and mortgage debt skyrocketing, leading to possible risks to the country in the future. That’s a concern even former Bank of Canada Governor Mark Carney has hinted at.
Indeed, the tally of mortgage debt held by Canada’s chartered banks hit $879 billion in June of this year, Bank of Canada data shows.
But factoring in mortgage debt currently held by small brokerages puts the total even higher, with the debt load topping out at $1.1 trillion, according to the Globe and Mail.
But keeping out of debt isn’t that hard.
One sure-fire tip to keep in mind is to generally live within your means – don’t let your eyes be bigger than your wallet!
To start, it’s good to scour through your bank statements for the last 12 months and see where your hard-earned dollars actually went. Don’t forget to include bills paid annually and purchases made in cash.
Next, compare how much you make to how much you’re spending in order to figure out how much is left over. That gives you a number that will let you determine how much you’ve got left over for savings and investments.
It’s also smart to regularly give yourself a spending check-up, looking at the ways you spend your money each month and how it works into your saving or investment goals. This helps catch any bad spending habits!
And if you find yourself living above your means, don’t shy from making tough choices to cut spending. One tough but simple way to do this is to see if you splurge on emotional spending: shopping when you’re stressed or bored, to give yourself a pick-me-up and other habits of “retail therapy.”
When your cash flow is dry, do your best to limit your purchase to what you need – not what you want – and plan out your purchases instead of shopping on a whim. And if you really do feel that you want to buy something, give yourself a two-day period before the purchase to be sure your emotions aren’t driving your spending.
And when you’re in especially dire financial straits, give yourself some tough love with credit cards and personal loans. If you can’t pay off the balance each month, don’t use them. And use cash – not credit – for bigger purchases such as furniture and clothing.
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