Peter Boys, Boys Financial Services

Cutting Expenses and Eliminating Debt Painlessly

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With today’s economic uncertainty, many Canadians are looking for ways to reduce their monthly expenses by eliminating debt. A relatively painless way to reduce your monthly expenses is to have a second look at the way you’re managing your debt. Over time, most of us take out a variety of loans for different purposes. These can include things like credit card debt, car loans, home renovation loans and, of course your mortgage. If you have more than one loan, you’re most likely paying a different interest rate on each loan.

One of the easiest ways to reduce your monthly interest costs is to consolidate your debt at the lowest possible rate. Typically, your lowest-rate debt will be a loan that is secured by an asset, such as your home.

Reducing your monthly expenses is one way to deal with economic uncertainty, and it doesn’t have to be painful. By borrowing smarter you can reduce your interest costs and increase your monthly cash flow.

When most people think about retirement planning, they think of building a retirement nest-egg through RRSPs and pension plans. While these are key pieces of the puzzle, it’s important not to forget about another important element of retirement planning – debt elimination. After all, the less you spend on interest, the more you can allocate to building your retirement savings.

A debt elimination plan: If you have sufficient equity built up in your home, consider switching to a product that allows you to access your equity such as a home equity line-of-credit. Then, use this line of credit to repay your higher-interest loans. In this way, you’ll be bringing all of your debts together into a single account at a single low rate. Some line-of-credit products even allow you to track debts separately within the account so you can continue to keep track of interest costs and repayment separately. Not only will debt-consolidation save you interest, but it will make it easier for you to keep track of what you owe and how you’re progressing in paying it down.

A debt elimination plan doesn’t have to be complicated. But you should have one or you’ll likely be in debt longer than you have to. There are a few simple strategies for getting out of debt sooner, such as:

• Build extra debt payments into your budget.
• Consolidate all your debts at the lowest rate possible.
• Use your income and savings to automatically reduce your debt (without giving up access to that money).

If you’re planning for retirement, don’t forget the impact that your debt has on these plans. By implementing a strategy for becoming debt-free sooner, you may even be able to retire earlier than expected. We have helped many families develop a debt elimination strategy that also complements their retirement savings strategy.

Help out the kids without hurting your retirement. As parents, we want nothing more than for our kids to succeed. Often, we wish to give our children a “leg up” in their transition to adulthood by helping them out with larger expenses, such as tuition for post-secondary education, a down payment on a home or a reliable vehicle. If you find yourself in this situation, be sure to carefully consider where you take that money from so that helping your kids doesn’t hurt your retirement.

If you are looking to cut back your monthly expenses, eliminate debt, help your kids financially or considering a reverse mortgage, a professional financial advisor can customize an effective solution for you.

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