Cashflow Challenges and Strategies
Many Canadians need help with cashflow issues due to rising rates, high levels of debts, and rising living expenses or inflation.
According to Manulife’s latest Debt Survey
- 25% of mortgage holders may be forced to sell if rates move further
- 67% are worried about making their mortgage payments
- 50% shared that their spending is now outpacing their income
- 48% feel overwhelmed by their financial situation
- 85% are worried about interest rates, and 94% are worried about inflation
- 27% say their mental health has worsened over the past year.
If you are feeling frustrated, anxious, and worried, here are some debt management tips and strategies that can help:
1). Pay off debts with the lowest balance first. The common mistake that people make is they tackle the biggest debt first. However, by doing this, you may not make any progress every month you make a payment. For example, if you make the minimum payment only on a $10,000 credit card with 20% interest, it will take you around 29 years to pay off the debt assuming no additional charges were added to the balance. It can be discouraging. Paying off debts with the lowest balance first is more effective because this gives you momentum. Small wins provide you with confidence or inner pride to keep you going.
2). Next, pay off debts with the highest interest rates – because these debts can be challenging to pay off if most of the payment is dedicated to interest charges and very little of your payment pays down the loan principal. Paying off a high-interest debt will lower your interest charge and give you more cash to pay off the other debts sooner.
3). Consider consolidating your debt – Several payments are now combined or reduced to a single payment. Depending on the types of debts being consolidated and the rate and term of the new loan, total interest charges and payments could be much lower. You could potentially save hundreds or thousands in cash flow every month. How do you do this? You can either refinance your mortgage or vehicle or apply for a consolidation loan.
4). Review your mortgage 13 months or so before maturity – 85% of those renewing their mortgage in the next 12 months are concerned about what the renewal will mean to their finances. If you are one of those, please make sure you talk to us 13 months before your mortgage maturity so we can reserve your rates before they get higher.