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Pay your debts

With the last quarter of 2014 starting, many readers of the Journal are asking the same question. Do you have to pay your debts BEFORE you start saving in an Good Lender?

Observe is the rate you pay

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My answer will surprise you. No, not always and it is very well possible to do both. Before choosing, the most important variable to observe is the rate you pay. If a large part of your debt is linked to your credit cards and department store cards, then it’s urgent. We must pay the balance FULL and grace, eliminate it. For a long time, I have been working with one card and my life is better.

Many issuers of Good Finance charge between 20 and 30% annual interest. It’s totally crazy when you realize that the Bank of Canada’s key rate is 1%. It will be necessary one day that the government sets an interest ceiling based on a multiple of the prime rate (eg maximum 10 times).

Since you can not find Good Lender eligible products with a 25% GUARANTEED rate, by paying off these expensive debts, you will enrich yourself and make monthly payments. With this new financial margin released, you will absolutely have to start a regular automatic contribution plan so that the surpluses in your chequing account do not evaporate in shopping but make compound interest tax-free and tempting.

Smart debts

Smart debts

In my eyes, student loans, small business and mortgages are in a class of their own. They are debts, yes, but they will probably become assets over time. That’s why I call them “smart debts”. In addition, the interest rates associated with them are generally not exaggerated. So, as long as the rates are reasonable, do not hurry to repay them and take advantage of your surpluses to save money. With a well-diversified portfolio, it is reasonable to plan an average annual growth of 6% or more.

Suppose you have a $ 10,000 cushion and want to lower the balance of your mortgage. An Good Lender contribution will allow you to do both. If your marginal rate is 40%, a $ 10,000 contribution will result in a $ 4,000 tax return … that you can use to pay off part of your mortgage. The money could also be deposited in your Good or the Children’s Education Savings Plan.

To consider

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  • The interest rate of your debts is decisive
  • Often, it’s better to eliminate your credit cards than to contribute to an Good Lender
  • Reduce the number of cards and set up an automatic savings plan
  • Redeeming Good Lenders to pay off debts = bad idea
  • Mortgage rates are very low, so take advantage of them to save
  • If your tax rate is very low, inflate your Good

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