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Is Your Mortgage Fueling Your Need to Reduce Debt?

Many Canadians taking on a new mortgage this year are faced with record-high levels of household debt. With the household-debt-to-income ratio at an all-time high of nearly 168 per cent, now’s the time for Canadians to look at ways to reduce debt. November is Financial Literacy Month, and it’s a great opportunity to explore your debt options and set goals for the coming year.

Home sales across Ontario have been soaring in large, urban areas, but that trickle effect has also been reaching into smaller communities. Midland-Penetang saw real estate sales up 36.8 per cent from the same time last year. Many Midland home-buyers have been taking advantage of low interest rates and buying their “dream homes” for about one third the price of a home in the GTA. However, new changes to mortgage rules may begin to cool the market as some new buyers are now being subjected to a “stress test” before being approved for mortgage loans.

The mortgage-debt connection

Mortgage stress test rules may frustrate buyers who may no longer qualify for as large of a mortgage that they had hoped for, but it could save them a lot of grief in the long run. These rules could help “weed out” buyers who may be taking on more mortgage than they can afford and subsequently running short on income to cover monthly costs.

For families or first-time buyers who were approved for a mortgage in the past year, have you been finding it difficult to meet your monthly financial obligations? Over the past year, have you added to your debt to stretch your income? A recent study shows that over one-third of Canadians were unable to pay a bill in the past year, and that their average mortgage debt has increased to $181,000.

During Financial Literacy Month, it is important to recognize the need for debt help and explore what options you have to combat the effect that your mortgage may be having on your debt load.

How to find wiggle room within your budget

The Financial Consumer Agency of Canada (FCAC) outlines the importance of improving your financial literacy and taking an active role in your finances to avoid debt. You can begin this process by referring to “Your financial toolkit” provided by the FCAC and applying it to your situation. You can also make debt management part of your daily habits:

  • Reduce your spending and follow a budget. A budget is a necessary tool for every stage of life. It allows you to predict expenses and plan ahead. Try using a financial app to create a budget so you can reference it easily.
  • Reduce your household costs such as utilities and groceries. Coupon apps can help you save when you shop and even offer cash back. Try out Flipp or Checkout 51.
  • Pay yourself first. Set up an automatic savings account that will tuck away a specified amount from each paycheque.
  • Seek debt help. A Licensed Insolvency Trustee in Ontario can assist you in filing a consumer proposal, direct you to credit counselling services and explain all your debt options to find the best solution that will suit your needs.

Have mortgage payments been getting in the way of your finances? Since buying a new home, have you been incurring more debt? Use the above strategies to reduce debt and get back in control of your financial health.

To test your financial skills, take the FCAC’s Financial Literacy quiz. To learn more about Financial Literacy Month, search the Twitter hashtag #FLM2016 and join the conversation.

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