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There is No Good Debt

Remember the famous saying from the 60’s “The medium is the message”? This idea has some serious complications today as there are more mediums than ever to choose from. One of the most common messages is the delusion of happiness in buying. We can tweet, like, snap, chat, and pin ourselves into more debt than we ever dreamed of just to keep up with what’s going on.

We are convinced that we deserve all of those things that we need credit to buy. We are sure that a raise, a big bonus or a second job will pay off the debt. And with low interest rates out there, we are encouraged to borrow more.

Average household debt in Canada continues to rise at an alarming rate. Although most have managed to keep up with the demands of such debt, the reality is, many are just one pay cheque away from default. All it takes is an illness, accident or temporary layoff, and the seriousness of the situation gets real fast.

There was a time that the concept of good debt versus bad debt was explored. This concept held that a mortgage was good debt versus a loan for an expensive power boat that you really could not afford was bad debt. It also held that investment loans and student loans were good debt because they paid off in the end. The idea that there is such a thing as ‘good debt’ belongs in the 60’s with the medium and those messages! We need to change the way we think about our debt.

Buying a home is one of the biggest financial decisions of your life, and it can really pay off in the long run, as long as you are smart about it. Before you consider this big purchase, you really need to sit down and figure out what you can afford. Don’t forget to factor in property taxes, insurance, utilities, general maintenance and money for improvements. A good rule of thumb is 2-3 percent of the value of your home each year. That is about $6000 to $9000 a year on a home worth $300,000. Certainly a sum that makes you think.

Investment loans too can pay off. Remember, buy low, sell high. Simple enough, right? Well, socially we have become a society of reactionists. We want it all immediately. If the markets go down, people panic and want to sell – we can simply send a text and change everything now. But investments are best approached with patience, and that is just not something built into the GenY.

Finally, student loans. Most will argue that there is no investment better than education. Yes, a college or university education can certainly increase your earning potential over a lifetime, assuming there is a job in your field of study, which is not always the case. Take the time to make a wise decision, do your best to keep those student loans down, and after graduation, pay them off aggressively. Even a small increase in monthly payments of $30 to $50 can save you time and money in the end.

You can also read this article There’s no such thing as good debt by Rob Carrick published recently in The Globe and Mail.

To learn more and find out how you can improve your current and long term financial situation, speak to one of our Financial Services Representatives today. Call 1-800-361-0941.

 

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