With the global economy and stock markets continuing to be affected by S&P's downgrade of U.S. debt, it's a good time for individuals to look at their own credit situations.
"Managing debt is a major priority for economies around the world, but it's also an important concern for consumers," said Su McVey, Vice President, Customer Communications & Marketing, BMO Bank of Montreal. "Case in point - a BMO survey reveals that one in three Canadians are living at or beyond their means, with 27 per cent living paycheque to paycheque - a 10 per cent increase over last year. It's important to maintain a healthy credit rating to ensure you are not affected by excessive debt."
Consumer debt is higher than it's ever been.
"Canadian households have taken on a record amount of debt, though most are having little difficulty servicing it because of low interest rates," said Sal Guatieri, Senior Economist, BMO Capital Markets. "Now is the time to manage debt, before interest rates climb in the future."
BMO Bank of Montreal offers these 5 tips to avoid your own debt downgrade:
• Create a budget and stick to it - Spend less than you make. Develop a
budget that establishes how household expenses will be paid and how
spending will be managed. Take advantage of free online tools, such as
BMO MoneyLogic(TM), to help stay on top of everyday household spending
and saving.
• Curb credit card debt - Pay down credit cards, beginning with those that
carry the highest rate, and consider using a low rate card for
purchases. For instance, the BMO Preferred Rate MasterCard offers a low
rate of 11.9 per cent for an annual fee of $20 per year.
• Invest to save - Set up a Tax Free Savings Account (TFSA) or high
interest savings account such as the BMO Smart Saver Account to set
aside extra cash in case of an emergency. Also consider using Exchange
Traded Funds to reduce management expense fees.
• Become mortgage free faster - Cutting your amortization from 30 to 25
years and increasing monthly payments on mortgages can help you pay down
your mortgage faster while saving you thousands of dollars in interest
costs. For instance, BMO offers a low 5 year-fixed rate mortgage with a
maximum 25-year amortization at 3.79 per cent. Additionally, consider
increasing the frequency of your payments and/or making lump sum
payments to pay down your mortgage faster. For example, by making a lump
sum payment of 5 per cent of the original principal each year, you can
pay off a 25 year mortgage in less than 12 years and save over $136,000
in interest.
• Have a plan B - Plan ahead and develop a fall back plan in case you are
unable to meet your financial obligations due to unexpected
circumstances, such as loss of work, or damage to personal property,
including your home or vehicle.