Your Assumptions On Debt
In terms of considering debt, some people firmly believe that any form of debt is bad, while some others remain firm in their belief that borrowing money and using it as leverage will allow you to get ahead.
At ConsumerDebtAdvice.ca, we aim to grant people’s desires to get rid of their debt. We know that managing debt during difficult times is not an easy situation for anyone. In this guide, we will look at your different assumptions towards debt and see whether it is indeed bad as you think.
Money is cheap
Interest rates may be noticeably low from mortgages to a line of credit, this allows you to afford borrowing more than what you can before. Having this in place, is it rightful to say that those who hasn’t obtain any debt are missing this big opportunity? Some may agree that it’s best to take advantage of the low rates and use the money to invest or prepare for retirement. Probably you’ll take your chance to free up some dollar for your TFSAs, RRSPs or your emergency fund.
Risk of Borrowing
If you are assured that you’ll be able to earn more money than the interest that you’ll pay from the amount you borrowed, then this would an easy decision to come up with. Mostly, people tend to favor borrowing money or getting into debt if the risk is entirely eradicated. This means you’re guaranteed to earn and be able to pay off debt. However, this is just an assumption, whether, with low-interest rates or monthly payments, the risk of borrowing still remains. Besides, the risk of borrowing is not that easy to analyze or fathomed.
Analyzing the Risk
To give you an idea of how numbers complicate the issue, look at this example for instance.
You’re able to take out a mortgage for a 0% interest rates.
Considering that it’s 0% interest, you might be wondering, what’s the risk? Well, here are a few of the risks that you’ll be facing:
- What if you lose your job and can’t make your payments each month
- The value of your home can go up, which relates to higher taxes on your property and insurance.
- What if the value of your home goes down, surely it will be hard for you to sell it.
The bottom line is, borrowing always comes with a risk. So, don’t be blinded by the figures that you can see. It’s always better to weigh in your options before making the decision.
Capitalizing on Low Interest Rates
Without any reservation, several people are profiting from low-interest rates, which they put up for investment. For instance, during the crash of housing in the US, investors utilize low-interest rates for them to buy more properties, which in turn goes up in value after some time. Besides, business loans are less expensive; so, its less risky to carry or venture for business. The fact that business owners obtain an adequate time-frame to fully paid their loans, giving them benefits in terms of flexibility.
Do Not Rush
At this point, your debt might be your greatest regrets. Have a flashback on your financial decisions and check whether a lower interest rate allows you to be excused from this situation.
As a wild guess, probably not!
Before you grab on cheaper money, you might think twice if it really leads you to quick-wins. A similar impulse drives you to submit yourself, the drive to get a significant return, which later on results to your failed expectation.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.