10 tips on how to cope with higher interest rates
FOR BUYERS AND SELLERS
1. Make a list of all of your debts
Your list may include payments on a mortgage, car loan, student loan, credit cards, taxes you owe, retailer plans (e.g., buy now, pay later), unpaid utilities, etc. Once you know exactly how much you owe, you can chat with mortgage agent or financial advisor about what you should take on first.
2. Review your budget
Write down how much income you and your family generate then compare it your spending and debts. This gives you a clearer understanding of your financial situation. Try to make cuts here and there to help reduce daily spending.
3. Pay off high interest debts
Credit card interest is notoriously high. The Sutton article provides an excellent example to show this at play: if you owe just $1,000 on a credit card with a 29% interest rate and you make the minimum monthly payment of $10, it will take you 21 years plus five months to pay it off, and it will cost you a whopping $3,114.37 in interest (Government of Canada, 2023).
4. Consolidate debts
Consolidate high interest debts into a loan with a lower interest rate. This should help cut costs over time and help alleviate the stress from so many separate payments.
5. Improve your credit score
Paying your bills on time is important to your credit score, which helps you qualify for the best rates for a loan, mortgage or line of credit. Even if you already have a mortgage, your score matters when it’s time to renew. For example, a mortgage with a 25-year amortization may consist of five terms of five years each.
6. Reduce non-essential spending
With just a few clicks, you can have virtually anything delivered to your doorstep. Ask yourself what is essential and whether you are saving enough. Small savings add up; try taking public transit instead of driving and paying for parking and bring your own beverages and food to work instead of eating out.
7. Use points
Take advantage of the points offered by credit cards to purchase essentials such as groceries or arrange for cash back on credit card spending. If you keep up with regular payments, you can improve credit while benefitting from the perks.
8. Be wise with Payment Plans
When your refrigerator breaks down, you don’t have much choice about buying a new one. Some major retailers offer discounts and a deferred payment plan when you sign up for their credit card; this can be beneficial only if you make payments and pay off the balance on time otherwise, their fees are exorbitant. Consider looking into second-hand appliances to save on money until you are in a better position to buy new.
9. Be conservative
Lenders make money on interest so they like borrowers to accept the most they can possibly manage. Do not accept a higher spending limit on credit cards and lines of credit and take your smallest, manageable mortgage amount. Use a mortgage calculator to see how much goes to principal and interest from year to year.
10. Increase income
Pursue ways to earn more (e.g., rent out a room or suite, sell items, take extra work).
I hope you find this information useful in helping reduce the stress from these recent increases in mortgage rates. The more you make positive changes like these in your everyday life, the more thoughtful you will be with choices going forward. These steps can help you save thousands of dollars and bring you closer to a debt-free lifestyle.
Information sourced from sutton.com - June 5, 2023.
About Kim Purcell
I have been working as a Realtor in Kingston for over 6 years now and work under the Sutton Group Masters Realty Inc., Brokerage. I especially like working with first-time buyers, first-time sellers and clients interested in buying or selling condominiums in the area. I was born and raised in Kingston and know the city and local real estate market very well. If you are considering a move , please reach out to me by phone or email and I will answer any real estate questions you may have. I look forward to hearing from you!
Kim Purcell - Kingston Real Estate Agent
1650 Bath Road
Kingston, ON K7M 4X6