Tips for debt-free living

Believe it or not, the meltdown of the world’s financial markets does bring with it a tiny silver lining. It turns out that now is a relatively good time to borrow money, if you can qualify to get it.

---

“Interest rates are probably on the lower end of what we’re used to,” says Chartered Accountant Michael J. Baron, an investment advisor with RBC Dominion Securities in Toronto. “This means that if you’re in a position to borrow money, it won’t cost as much.” But, at the same time, he cautions that credit availability is tightening up, and lenders are likely to be offering less favourable rates than just a year ago, even though base rates might be lower. Being over-extended to the extreme (carrying too much debt that depends on the value of assets constantly increasing) is exactly the situation that led to the financial crisis in the U.S. And while a certain kind of debt is acceptable and sometimes even advisable – like mortgages with reasonable rates of interest, for instance – many believe that the best kind of debt is no debt at all. “Being in debt is a learning experience,” says Michael. “It’s easy to rack up a huge amount of credit card debt when you’re young, and very quickly find that you can’t make even the minimum payments.” He explains that unless you’re paying off the balance in full each month, you’re likely to be charged a particularly high interest rate (sometimes as much as 20 per cent each year) making it even harder to pay down the debt. If that happens, it’s time to take action. Here are Michael’s five suggestions for tackling debt and getting your financial feet back on the ground. Take your financial inventory. List all your income, savings, and other sources of money on one side. On the other, write down everything that you owe. Get familiar with your bills and know where your highest rates of debt are. Itemize your loans and their interest rates. Note any special terms, like a “closed” mortgage that can’t be paid down. Lay out your options. Could you get better repayment terms if you consolidated all or parts of your debt? Do you have an existing line of credit that can be used to help pay off credit cards? If you’re young, could a parent or family member offer a loan? Work with your bank, credit card company or other lender. Those you owe have every interest in helping you recover financially. Lenders will usually work with people to help them reduce their debt, providing they are making good-faith efforts to tackle the problem and build a solid financial base. Learn from your mistakes. If you steadily work to pay down your debts, you will one day qualify to borrow money again, probably a small amount at first. With consistently good ratings of your ability to repay, you’ll eventually make it back to financial solvency and hopefully resolve to live happily and debt-free forever after.