Your Finances:

Debt and credit management

As a homeowner, debt and credit management are essential to your financial health. But if you're like many Canadians, you don't have a plan in place to efficiently monitor and manage your finances from month to month. Often it's because we believe we have a firm grasp on where our money goes with each paycheque, but taking a deeper took can provide some invaluable insights.

Today I'm going to offer you some tips for better debt and credit management. By minimizing both you can maximize how they positively affect your overall financial picture. Let's get started.

Minimizing your personal debt

Determine if you're in the red or black

Minimizing debt means getting to know yourself better, financially. The first thing you want to do is find your net worth. Knowing your net worth is a valuable tool for monitoring your financial progress from year to  year, and ensures you're headed in the right direction.

Calculate your net worth annually to see if your wealth is rising or falling.

Calculating it is quite simple too.

You just need to gather information on what you own and what you owe.

1. In one column list your assets including home equity, cars, valuables, bank accounts and retirement savings.
2. In another column list all of your liabilities including mortgage, car loans, credit card debt and any other debt.
3. Next, total the two columns and subtract your liabilities from your assets.

You now know your net worth. Regardless of the amount, or even if it's a negative number, you have a starting point. Record the date on your calculation and go through the same process next year or even in six months. It can be a powerful motivator for reducing debt - a personal budget is a great way to help you achieve your goals.

Know where your money goes

Surprisingly, many people never develop a budget. As long as the bills are paid each month, and they're putting some money into savings, everything seems fine. However, a budget is an essential part of managing your finances.
To see just how important it is, take the first step. Carry a journal and a pen with you at all times for one month to record your expenses. It's easier to manage if you divide the pages into columns and title them with categories such as groceries, mortgage, eating out, entertainment and utilities. Then methodically track everything, no cheating.
Seeing your expenses laid out before you provides you with a thorough understanding of how your cash flows in and out of your pocket. You'll also discover some bad habits you didn't know you had  - and get on the road to changing them for the better. Budgeting software such as Quicken makes getting started easy.

Knowing how your money flows can be an eye-opening experience.

Maximizing the benefits of credit

Credit cards used wisely

A credit card can be your ally when it's managed correctly. It can help build a positive credit score, get you out of a pinch, and even earn you rewards. On the other hand, poorly managed credit can be detrimental to your credit score, and cost you more than you imagined.

Knowing how your money flows can be an eye-opening experience.

Keep these tips in mind:

• Limit your number of cards. It's easier to keep track of expenses, and reduces the chance of a missed payment.
• Transfer credit card debt. It's a good idea to always pay your credit cards in full each month. If you are carrying a balance, a personal line of credit offers a much better interest rate.
• Don't spend what you don't have. Use the convenience of a credit card only knowing the money is in the bank.
• Be diligent with payments. Never pay the minimum only. Your original purchase could end up costing you twice as much.
• Avoid missed or late payments. You could incur additional fees and a black mark on your credit rating.

Understand your credit score

You know from first-hand experience that your credit score plays an important role when purchasing a home. But for many, its contents are not entirely understood.

Canada's two major credit-reporting agencies, Equifax and TransUnion, gather a financial history about you that includes information about your credit and bank accounts, public records that reveal bankruptcies or credit-related court judgments, and any debt that went to a collection agency. It may also include a personal statement from you regarding information in your history.

This information is used to generate a score between 300 and 900 which lenders then use to determine whether or not to extend credit to you. The higher your score the lower your risk.

Check your credit score regularly to ensure accuracy.

You should request a credit report from both credit agencies at least once a year to ensure your information is correct. Visit Equifax.ca and TransUnion.ca to learn more.

Nicole Hayes, AMP
Mortgage Consultant
604-998-8887 X 201.