Why it’s time to pay down debt and save
Time has changed; the world we live in today is much different than the one we lived in just one year ago. 2018 has already seen a stock market correction, inflation is on the rise and interest rates within the past year have been increased three (3) times. Stock markets had been on the rise for years and interest rates stayed the same. Interest rates are expected to rise further in the near future. Here is why it’s time to pay down debt and save.
What does this mean for you?
Debt becomes more expensive
Regardless of whether you have variable or fixed rate debt (learn about variable and fixed rate debt in our article) as interest rates go up it costs you more money to pay off your debts! If you have variable rate debt, when interest rates increase yours does automatically. If you have fixed rate debt, when it is time to renew the renewal rate will be higher than your previous rate.
In Rent vs buy: the debate of a lifetime you saw that interest costs are 67% of the cost of your mortgage! Your house cost goes up by 2/3s! With interest rates increasing the additional cost will only increase!
You earn more on savings
With higher interest rates you earn more on saving accounts and GICs! Your cash can make you more money and with the power of compound interest can make you even more! You can use this increased value in cash to save for things like education, a well deserved vacation, some well needed home repairs, etc.! Having more money to do the things you want in life is a great thing!
With greater cash available you can also use it to invest for the future for things like a new home, retirement, a sabbatical, etc.
Do not incur more consumer debt, especially variable debt! If your mortgage is up for renewal, lock in the rate so when interest rates rise your rate won’t!
Pay down your higher interest rate debts first. High credit products like credit cards should be paid off monthly. Use a line of credit to pay off credit cards then focus on paying down that line of credit!
Open up a high interest rate savings account at your bank or credit union. Virtual banks offer much higher interest rates. You may be offered a significant promotional interest rate, meaning for on new deposits you earn an even higher interest rate!