3 Common Home Buying Mistakes (and How to Avoid Them)

With spring officially here (finally!), let’s continue our discussion on real estate. In my last article, we talked about the importance of being pre-approved for a mortgage before you go house hunting. Once you have your finances in order, only then can think about buying the property itself.

House hunting is an exciting time, but if you’re not careful you can make a costly mistake along the way. Let’s take a look at three common home buying mistakes and how to avoid them.

Mistake #1: Not Being Flexible with Your Home-Buying Needs and Wants

Before you go house hunting, it’s a good idea to come up with a list of needs and wants. Examples of need include three bedrooms and two bathrooms and wants include a Jacuzzi and deck.

While it’s helpful to have a list of top 5 needs and wants, be careful not to go overboard. If your list of needs and wants is too long and you’re not willing to compromise, it could take you a very long time to find the ideal home. I’m not saying that you should compromise on something crucial like the number of bedrooms, but if a home has something you’re not particularly fond of like carpeting in the basement, that can be fixed. I hate to break it to you, but if you’re looking for the perfect home, you could be looking for quite a while.

Mistake #2: Not Focusing on the Bones of the Home

Another mistake to make when you’re house hunting is focusing on the wrong things. When you’re looking at properties, it’s easy to focus on the cosmetics and overlook what I liked to call the “bones” of the house. Cosmetics are things like a newly renovated kitchen and bathroom, hardwood floors and paint colours.

While those things are all nice, make sure you don’t overlook the most costly parts of the home. I’m talking about the roof, windows and furnace. Those can end up costing you a pretty penny to repair. Likewise, see if there’s any dampness in the basement. Waterproofing your house can be one of the most costly things a homeowner can face.

Mistake #3: Skipping the Home Inspection

When you see a place that you like and five other people are interested, it’s easy to skip the home inspection and go in with an offer without any conditions. But by doing this, you’re leaving yourself open to all sorts of problems later on. Not only does getting a home inspection offer you piece of mind, it can be a good negotiating tool. If you find something wrong with the property, you could ask the seller to knock an amount off the selling price to compensate you for it.

So, you want to get a home inspection, but you’re worried that you’ll lose the house since there are other people making offers. What can you do? You can get something called a “pre-inspection.” A pre-inspection is when you get your home inspection done before you make an offer on a property. By doing that you don’t have to include it as a condition, improving your chances of getting the property.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

The Difference Between Being Pre-Qualified and Pre-Approved for a Mortgage

March 20th marks the first day of spring. It also marks the first day of the spring real estate market.

Spring is a great time to go out and look at properties. It’s the time when there’s traditionally the best selection of properties on the market for sale. But before you start looking at properties, it’s important to make sure you have your mortgage financing in order.

Many of us toss around the terms “pre-qualified” and “pre-approved” like they’re one and the same. While they’re both related to buying a home, they aren’t the same. Let’s take a look at the difference between being pre-qualified and pre-approved for a mortgage.

Being Pre-Qualified

If you’re toying with the idea of buying a home, getting pre-qualified is a good first step. When you get pre-qualified, the lender will ask you for basic information on your income, assets and debts. It will then do its own calculation to determine how much you qualify to borrow by way of a mortgage.

Being qualified doesn’t take very long. It can be done in under 10 minutes. Oftentimes, you won’t even have to visit the bank to do it. You may be able to do it online from the comfort of your home.

While being pre-qualified is helpful, it’s important to recognize that it only goes so far. For instance, it usually doesn’t include a credit check. It’s mainly used to give you a rough idea about how much you’d qualify to borrow for a mortgage.

If you’re serious about buying a property, you might skip the pre-qualification and go straight to being pre-approved, which we’ll talk about next.

Being Pre-Approved

Think of being pre-approved as the next step up from being pre-qualified. When you’re pre-approved for a mortgage, you’ll often get something in writing from the lender.

Being pre-approved is similar to being pre-qualified, except you’ll provide more information. You’ll typically provide a lender with permission to pull your credit, notices of assessment for the last two years, pay stubs, a letter of employment and financial statements as proof of your down payment.

By providing all this information, the lender can provide you with a more accurate mortgage pre-approval amount. This gives you the confidence to go out and look at properties. When you see a property that you like, you can make an offer knowing that your mortgage financing is likely rock solid.

Your lender will often provide you with a rate hold. A rate hold means the lender is securing a specific mortgage rate for you for a period of time (often 3 months). This can protect you if mortgage rates go up while you’re looking at properties. If that happens, the lender should provide you with the lower rate of your pre-approval.

While being pre-approved is helpful, it’s important to understand that you aren’t guaranteed the mortgage. The missing piece of the puzzle is the actual property. The lender needs to see the property that you’re buying before they’ll approve the mortgage. Chances are your mortgage will be approved, but it’s not guaranteed. As such, you might want to make any offers on properties conditional on financing to provide yourself with that much more piece of mind in case any issues arise.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

3 Bankruptcy Myths Busted

Have you ever heard of the TV show MythBusters? Well we’re going to do some “myth busting” of our own with respect to bankruptcy.

With household debt near a record level and interest rates on the rise, it should come as no surprise that Canadians are becoming increasingly worried about debt. In an Ipsos survey, one in three Canadians admitted to fearing bankruptcy. Millennials are finding themselves the most concerned. 62% are concerned about paying their bills, while 46% are worried about being pushed into bankruptcy.

With financial literacy lacking in this country, bankruptcy isn’t something most Canadians know very much about. It’s only when you’re on the brink of it that it becomes top of mind. With that in mind, here are three bankruptcy myths busted.

1. Filing for Bankruptcy Erases Your Student Loan Debt

Most employers these days are demanding more education. In our parent’s generation, you could often get by with just a high school diploma, while these days in many fields you need an undergraduate degree at a bare minimum.

Imagine you do everything right: you go to university, get straight A’s and graduate top of your class. The problem is that it’s in a field that’s not in demand. Instead of graduating with a well-paying job waiting for you, you’re left with a crippling level of student debt and no way to pay it off. Don’t think this could happen? It happens more often than you think.

If you were thinking about filing for bankruptcy to forgo paying back your student debt, I hate to break it to you, but you’re out of luck in most cases. While are sometimes when you can get out of paying back your student debt, you’ll need to jump through a lot of hoops to do so.

Similar to death and taxes, repaying your student debt is almost a certainty in life. If your student debt is under seven years old, then you’ll still be on the hook for repaying it even after you file for bankruptcy. The only option may be to apply for the repayment assistance program to lower your payment, but your student debt will still be there, so choose wisely a university program with good job prospects rather than a big mound of student debt waiting at the end.

2. Only Reckless Spenders File for Bankruptcy

Like it or not, there’s a negative stigma with bankruptcy. There’s a general belief out there that only reckless spenders file for bankruptcy, when that couldn’t be further from the truth.

I recently interviewed Ben Le Fort for my Burn Your Mortgage podcast whose parents, who were successful real estate agents, were forced to file for bankruptcy when the 2008 financial crisis happened and they didn’t have any emergency savings.

Sometimes life circumstances can throw you a curveball. You could lose your job, get sick or your partner could suddenly pass away. That’s why it’s so important to have an emergency fund. Three to six months’ living expenses should suffice, depending on the stability of your job. But that’s a lot to save if you don’t have any savings, so start small. Save whatever you can afford – $25 or $50 a week – to start. You’ll have a sizable emergency fund before you know it.

3. The Insolvency Trustee You Go With Doesn’t Matter

When you’re hiring a real estate agent, you wouldn’t hire the first one that you meet (at least I hope not). You’d take the time to interview at least two or three agents before making your final decision. The same holds true with trustees.

Choosing an insolvency trustee is kind of like picking a lawyer. The trustee you end up working with can have a huge impact on how your bankruptcy is handled and how your financial future plays out.

There are over 900 licensed insolvency trustees in Canada. Each one may interpret the Bankruptcy and Insolvency Act differently. Taking the time to interview at least a couple is time well spent. These are just three bankruptcy myths. Thinking about filing for bankruptcy? Speak with one of our experts to see what makes the most sense for you.

How much money is ideal to pay towards Visa #2? Personal finance is very personal, so it depends on your own personal situation. Creating a budget is a good first step to see how much you can comfortably afford to put towards paying off your debts.

Are you motivated to pay off your debts that much sooner? Go on the offense with your finances by bringing in extra income or go on the defense by cutting expenses. For example, if you’re a good photographer, you could be a wedding photographer in your spare time. Likewise, if you’re looking to save money, instead of buying lunch every day at work, you could pack your lunch once or twice a week.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

Paying Off Consumer Debt: Debt Avalanche vs. Debt Snowball

Who doesn’t love the holidays? It’s a great time to kick back, relax and enjoy some quality time with those nearest and dearest to you.

While there’s a lot to love about the holidays, something that a lot of us dread is opening our credit card statements in January. Many of us take an “out of sight, out of mind” approach. The problem is that this can lead to something I like to call “bill shock” in January, when we open our credit card statements and find out we ended up spending way more than we intended to spend on the holidays.

Starting the new year in debt isn’t fun, but if you find yourself in this situation, there’s no need to panic. Here are two tried-and-true strategies for paying off your consumer debt.

The Debt Avalanche Way

With the debt avalanche way, you start by paying off the debt that’s costing you the most – the debt that has the highest interest rate. For example, if you have two credit cards, Visa #1 with an 18% interest rate and Visa #2 with a 28% interest rate, using the debt avalanche way, you’d focus on paying off Visa #2. (Don’t forget to keep paying the minimum payment on all your other credit cards, otherwise you could hurt your credit score.)

How much money is ideal to pay towards Visa #2? Personal finance is very personal, so it depends on your own personal situation. Creating a budget is a good first step to see how much you can comfortably afford to put towards paying off your debts.

Are you motivated to pay off your debts that much sooner? Go on the offense with your finances by bringing in extra income or go on the defense by cutting expenses. For example, if you’re a good photographer, you could be a wedding photographer in your spare time. Likewise, if you’re looking to save money, instead of buying lunch every day at work, you could pack your lunch once or twice a week.

The Debt Snowball Way

The second effective way to rid yourself of your debt is the debt snowball way. The debt snowball way is slightly different than the debt avalanche way. Instead of focusing on the debt with the highest interest rate, you’d focus on paying off the debt with the smallest balance. This may be the same credit card as the one with the highest interest rate or it may not be. It really depends.

Using the same example, if Visa #1 has an outstanding balance of $1,000 and Visa #2 has an outstanding balance of $4,000, with the debt snowball way you’d pay off Visa #1 first. (You’d of course still keep making the minimum payments on Visa #2 to keep your credit in good standing.)

I know this may seem counter intuitive and from an interest savings perspective, the debt snowball way doesn’t make sense, but debt repayment isn’t just about dollars and cents. It’s about doing something that motivates you to take action. If the debt snowball way motivates you the most, more power to you.

In the end, there’s no single right way to pay off  consumer debt. I’d encourage you to choose the way that works best for you, setting yourself a goal of when you’d like to pay off your debt and putting a plan in action. By creating a plan and sticking to it, you’ll drastically improve your chances of reaching your goal of debt freedom that much sooner.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

5 Common Credit Myths Busted

Wouldn’t it be great if all Canadians had an excellent understanding of credit scores? Unfortunately, that isn’t the case. With financial literacy lacking in the school system, most of the knowledge we receive about credit scores is secondhand from family and friends. Sometimes that information is right, sometimes it’s not.

Let’s take a look at some of the most common Canadian credit score myths and help dispel them once and for all.

Myth #1: I’ll Hurt My Credit Score by Checking It

This is false in most cases. If you’re checking your own credit score or credit report using a free or paid service, then it won’t affect your credit score. However, if you’re applying for a new credit card and the bank pulls your credit report, that can drag down your credit score.

That’s because there are two main types of credit inquiries, “soft” and “hard” credit inquiries. Soft inquiries like checking your own credit report aren’t noted on your credit history and therefor don’t affect your credit score, while lenders and credit card companies do a hard inquiry, which is tracked on your credit history, to determine how much credit they can offer you.

Too many “hard” inquiries can make it look like you’re shopping around for credit – which can be a red flag for lenders.

This brings us to Myth #2…

Myth #2: All Credit Reports Are The Same

In Canada we have two different credit bureaus: TransUnion and Equifax.

Consumers are typically listed with both, though the information can vary between the two depending on how the companies you do business with report credit and payment histories. You can get your free TransUnion credit report online here and your free Equifax credit report here. Both companies also offer credit monitoring, which can be a good investment if you’re concerned about identity theft or fraud.

Both companies also offer several different views or versions of an individual credit report to businesses. Depending which view a business is using, they may see a different score. This is true for free online credit scores as well, as Marketplace reported in October 2019.

Myth #3: I’ll Improve My Credit Score by Lowering My Credit Limit

Again, this is false in most cases. One important factor that determines your credit score is your credit utilization. That’s a fancy way of saying how much of your available credit you’re using.

A good rule of thumb is to keep your credit utilization below 35%. For example, if you had a credit card with a $10,000, you’d want to keep it below $3,500 (35 percent) at all times. When it gets above 50 percent lenders tend to get nervous that you could be running into financial difficulties.

Giving yourself some breathing room makes sense for most people, but if you’re someone who knows you’ll spend right up to your limit if it’s available, you might be better off with a lower credit limit. Just be aware it’s likely to hold back your credit score – although that’s better than having a large balance on your credit card next month!

Myth #4: I’ll Help My Credit Score by Closing Old Accounts

Do you have a credit card in your wallet that you haven’t used for a while? Your first instinct may be to close it, but did you know that could actually hurt rather than help your credit score? That’s right, if you have a long history of making your payments on time and in full, by closing this credit card, your credit score is likely to take a hit.

You may be wondering why. The reason is simple. The length of credit history is another factor that comes into play with your credit score. When you close an old credit account, you’re shortening the length of your credit history, so it’s best not to do in most cases. The only time it may make sense is if you’re barely using a credit card and it comes with a hefty annual fee. Otherwise, you’re most likely better off keeping it open.

Myth #5: When Does An Old Bill go into “Collections”?

Everyone knows that having an item in collections will have a seriously negative impact on their credit report. But we recently helped a client who had an item in collections – and she didn’t even realize it.

Because the debt was with an internal collections team and hadn’t been transferred to an external agency, she didn’t realize the overdue bill was now considered as “in collections”. But that was what the credit bureau was reporting, and what was holding her back from getting more credit when she needed it.

If you want to learn more about which credit myths might be holding down your credit score, contact one of our credit consultants for a free consultation. They can review your credit report with you and help you find the right tools to grow your score.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

The First-Time Home Buyer Incentive: Everything You Wanted to Know About Shared-Equity Mortgages

With the federal election coming up on October 21st, home affordability is a hot topic for Canadians. Home affordability is such an important issue because it’s the single most costly household expensive for most Canadians. When your shelter costs are high relative to your income, you can find yourself “house rich, cash poor,” with very little left over to save, let alone have fun.


To help address home affordability, the Liberals introduced the First-Time Home Buyer Incentive. The First-Time Home Buyer Incentive is a shared-equity mortgage, a relatively new concept to most Canadians. Let’s take a closer look at the Incentive and how it may help with home affordability.

What’s a Shared-Equity Mortgage?

Shared-equity mortgages may not be something you know very well and that’s understandable. Shared-equity mortgages aren’t very widespread in Canada, but that could soon change if the Incentive proves popular.


A shared-equity mortgage is a mortgage where the lender (or the government for the Incentive) puts money towards your down payment. But instead of it being a loan that you have to pay back right away, the lender or government takes an ownership stake in your home.


The main benefit of a shared-equity mortgage is that it helps make the carrying cost of your home less costly and more affordable. That’s because your mortgage payments will be lower, not to mention you’ll pay less in mortgage default insurance (insurance you’re required to buy when making less than a 20 percent down payment on a property in Canada).


But there is a downside to that. As mentioned, the government owns part of your property. Depending on how much your home goes up in value over the years, a shared-equity mortgage could end up costing you a lot. That’s because not only will you have to pay back the original amount you borrowed, you’ll also have to pay back a portion of how much your home has gone up in value. (Although the silver lining is that in most cases you won’t need to pay back any money while you’re still living in the home. It’s only when you sell the property or you’ve been there 25 years that you have to repay the shared-equity mortgage).

Who is Eligible for the First-Time Home Buyer Incentive?

As mentioned, the First-Time Home Buyer Incentive is a shared-equity mortgage. A “shared-equity mortgage” can be offered by any lender, and for the Incentive, the federal government is using this existing financial tool to provide a top-up to a home buyer’s down payment, if they’re putting down less than 20% on a property.


The Incentive has been accepting applications since September 2nd, 2019 with the first closing taking place November 1st, 2019 – the application info is available here. Using the Incentive, if your household has a combined income up to $120,000 you’re able to receive 5% from the Incentive towards a resale home and 10% towards a new home. (In case you’re wondering, yes, you can withdraw the money from your RRSP under the Home Buyers’ Plan).


As the name suggests, you have to be a first-time homebuyer to participate in the Incentive. That means that you’ve never owned a home before, you haven’t occupied a home that you or your spouse or common-law partner owned, or you’re going through a marriage breakdown or breakdown of a common-law relationship.


Using the Incentive you can spend up to $565,000 on a property. This scenario is assuming you earn $120,000 per year and you’re purchasing a new home. That’s equal to four times your annual income and the Incentive amount. If your income is lower or you’re buying a resale home, your maximum purchase price under the Incentive would be lower.

To address the lack of affordable housing in Toronto, Vancouver and Victoria, the federal government has since introduced a new version of the Incentive. If you’re buying in those markets, you’d qualify to spend almost $800,000 on a property and could have a combined income of up to $150,000.

Does the Incentive Make Sense for Me?

If you’re someone struggling to save up a large enough down payment the Incentive is worth considering. It can help you get into a home sooner rather than later and start building up equity, not to mention it can save you in mortgage default insurance premiums.

Are you looking to rebuild your credit score to qualify for a better mortgage rate? Contact our offices today for tips on achieving a good credit score.

Climb’s Personalized Credit Prescription provides you with customized recommendations to help rebuild your credit score.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

Why You Should Stress Test Your Own Finances

Interest rates have been low for the better part of a decade, but just because they’re low now, it doesn’t mean they’ll stay low forever. Although it doesn’t look like the Bank of Canada is going to be raising interest rates this year, who’s to say our central bank won’t raise interest rates next year or the following year? The Bank of Canada has raised interest rates five times since mid-2017 and it could very well do it again in the future. How do you prepare your family for possible interest rates hikes? You can do that by stress testing your family’s finances.

Let’s take a closer look at stress testing and why it’s important.

The Mortgage Stress Test

When you hear the term “stress test,” probably the first thing that comes to mind is the mortgage stress test.

The mortgage stress test was introduced on January 1, 2018, to protect homeowners from rising interest rates. Anyone buying a home putting down at least 20 percent must pass the mortgage stress test. The mortgage stress test makes you qualify at a mortgage rate higher than the actual mortgage rate you’re signing up for.

The stress test requires you to qualify at the greater of your mortgage rate plus two percent and the Bank of Canada’s five-year benchmark rate (currently at 5.34 percent). For example, if you’re applying for a mortgage with a rate of 3.39 percent, you need to qualify at 5.39 percent, since 3.39 percent plus 2 percent is higher than 5.34 percent.

The mortgage stress test was mainly brought in to cool the overheated real estate markets in Toronto and Vancouver, as well as protect homeowners from higher mortgage rates when their mortgages come up for renewal. What if mortgage payments were 2 percent higher when your mortgage came up for renewal, could you handle it? That’s the all-important question the mortgage stress test answers.

Applying the Stress Test to Your Other Debts

Although the stress test is a term most often associated with mortgages, it’s a good idea to also apply it to other debt that you’re carrying, especially any debt with a variable interest rate. For any debt with a variable interest rate, you’ll feel the effects right away of an interest rate hike. If interest rates on your line of credit or personal line tied to prime rate were to rise 2 percent, could you handle the new payment? That’s the question you should be asking yourself.

Although you won’t feel the effects right away of an interest rate hike to any of your debt with a fixed interest rate, it’s still important to stress test it, as you could face a higher payment when your term ends and you need to renew.

Taking Stress Testing a Step Further

If you want to take stress testing a step further to ensure you’re prepared if and when higher interest rates arrive, you can pay your debt as if interest rates are already 2 percent higher. By doing that you won’t feel as much of a shock when interest rates eventually rise, not to mention you’ll save lots on interest by paying more than you need to at present interest rate levels.

Need some help with stress testing your own finances? Contact our offices today. Our credit consultants are happy to help.

Climb’s Personalized Credit Prescription provides you with customized recommendations to help rebuild your credit score.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

Canadian Household Debt on the Rise: What Does it All Mean?

It’s hard to pick up a newspaper these days and not see at least one headline about the elevated debt levels in Canada. If you find yourself in consumer debt, at least you’re not alone. But is all the worry really justified? Is Canadian household debt bordering on excessive or is the fear overblown?

Let’s take a closer look at Canada’s household debt situation and what it all means.

The Debt to Income Ratio Hits a New Record

If we focus on just the facts, the facts don’t lie – Canadian household debt is on the rise. Together we owe $2.16 trillion in debt. As a share of GDP, Canada has the dubious honour of having the highest debt load of the G-7 countries.

How did we as Canadians find ourselves in this situation? Low interest rates for the better part of a decade have encouraged Canadians to go on a borrowing binge.

A popular way to measure household debt is the debt to income ratio. The media loves to use this in attention grabbing news headlines. The debt to income ratio looks at your total debt compared to your income. To calculate your own personal figure, add up all your debts – your mortgage, car loan, line of credit, credit card debt and any other debt you might have – and divide it by your net (after tax) annual income. Multiply that figure by 100 and voila, you have your own debt to income ratio!

As of the fourth quarter of 2018, the average Canadian’s debt to income ratio rose to a record 174%, up from 148% a decade ago.

But there’s no guarantee interest rates will stay low forever. The Bank of Canada has already increased interest rates five times since mid-2017. Although it looks like our central bank has taken a pause with respect to further rate increases, if rates were to continue to rise again in the future, many Canadian families who are already feeling the squeeze from higher interest rates, might feel even more of a squeeze if and when higher interest rates arrive.

Is It All Really So Bad?

At first glance Canada’s debt situation looks pretty dire. While the total debt figure and the debt to income ratio may look scary, those are only two measures of household debt. Another important measure is your ability to service your monthly debt.

To calculate this figure, add up how much debt you have each month. This is debt you’d have to pay even if you were on holidays laying on a beach, sipping an umbrella drink. This includes your mortgage, car payments, minimum credit card payments and minimum student loan payments. Then calculate how much your household brings in on a monthly basis. This includes your salary, your spouse’s salary and any extra income you earn on the side.

Take the debt figure and divide it by your income figure and multiply by 100. Ideally, you want to keep this figure below 40 percent, although if you’re living in a city like Toronto or Vancouver where the cost of living is higher, that number could creep as high as 50 percent (although lower is better). Anything over 50 percent and it should raise the alarm bells. In that case, you should look to cut back on your fixed expenses.

The Bottom Line

When I was paying off my house, my debt to income ratio was almost 450 percent and I was fine. That being said, if your debt to income ratio is high and so is your monthly debt figure, then that should be an area of concern.

Confused about these numbers? Contact us today. We’re happy to walk you through them and help you get on the right financial path.

Climb’s Personalized Credit Prescription provides you with customized recommendations to help rebuild your credit score.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

Poll Finds Almost Half of Canadians are $200 Away from Insolvency

January 21st was Blue Monday. In case you’re not familiar with the term, Blue Monday is a name given to the supposed most depressing day of the year. If the sun setting before 5pm and the cold weather outside doesn’t dampen your spirits, getting your holiday credit card statement in the mail might just do it.

To coincide with Blue Monday, insolvency firm MNP released its latest poll with some eye-opening findings.

A Third of Canadians Don’t Make Enough to Cover Bills and Debt Repayment

MNP’s poll found that 46 percent of Canadians are $200 or less away from financial insolvency. That’s up from 40 percent the last quarter. Furthermore, 31 percent of respondents feel that they don’t earn enough to pay the bills and meet debt obligations. That’s up seven percent from last quarter.

With the Bank of Canada raising interest rates five times since mid-2017, Canadians are feeling the pinch. No more so than those living on the financial edge. The poll found that 51 percent of Canadians are feeling financially pinched by higher interest rates. That’s up from 45 percent the previous quarter.

These are some quite startling findings. It shows that Canadians aren’t saving enough for a rainy day. Any unanticipated increase in the cost of living or interest rates could push them over the financial edge.

Canadians Going into Debt to Pay the Bills

Canadians are a resilient bunch. Instead of filing for bankruptcy or a consumer proposal, they’ll use every tool at their proposal to pay for day to day living expenses. One of those tools is going into debt. The poll found that 45 percent of Canadians said they would need to go into debt to pay living and family expenses.

Higher living expenses aren’t the only concerns of Canadians. Further interest rate increases are a worry, too. Half of Canadians say that they would find themselves in financial trouble if interest rates keep rising. That’s up five percent from last quarter.

Higher living costs coupled with higher interest rates could put some Canadians in a real financial bind. The cost of living will most certainly keep rising. The only question is when will interest rates rise. If it ends up being sooner rather than later, it could impose a lot of financial pain on some Canadians.

Protecting Yourself from Higher Interest Rates

If you  have consumer debt, it’s important to come up with a plan of attack. As I mentioned in an earlier article, the debt avalanche and debt snowball methods can both be effective for paying down your debt. Likewise, you might want to look into getting a consolidated loan at a lower overall interest rate. Once you have your debts under control, your next focus should be building an emergency fund. Financial experts recommend saving three to six months’ living expenses in a savings account. Coming up with that much money at once can be tough, so start saving $200 per month or whatever you can afford and you’ll have a full funded emergency fund before you know it.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

How to Travel This Winter and Not Break the Bank

Winter is the coolest time of year and perhaps the most polarizing of all the seasons. Some people love winter time, while others (aka snowbirds) can’t wait to plan a getaway to a warmer place. It should then come as no surprise that airline tickets tend to be the priciest during wintertime, since many of us can’t wait to escape the colder weather.

So, how can  you travel this winter without breaking the bank and derailing your financial goals? Let’s take a look at some simple ways to save on travel during the cooler months.

Visit Less Touristy Places

When you think of winter travel, warm places like Miami, L.A. and Jamaica are probably first to come to mind. But you’re not the only one who wants to go there. These are among the most popular tourist destinations. That means spending megabucks on airline travel. There’s nothing stopping you from visiting a warm place without breaking the bank.

So, you want to go to Miami? How about going to Gulf Coast of Florida? The airline tickets will most likely be a lot cheaper and you won’t have to deal with the large crowds of Miami. Want to go to L.A.? Try San Diego instead. Want to go somewhere in the Caribbean? Instead of Jamaica, try Puerto Rico or the Dominican Republic. Both are affordable alternatives.

Travelling Within Canada

Not too fond of laying on a sandy beach? Would you rather be hitting the slopes? Whistler is a popular destination for skiers, but did you know there’s a more affordable alternative? Banff is worth a visit during winter. Winter is considered busy season at Whistler, while it’s slow season at Banff. You’ll be able to get access to the best ski hills in Banff and pay a fraction of the cost you’d pay in Whistler.

Be on the Lookout for Deals

Don’t wait until the last minute to book your trip. Start planning well in advance. You’ll be more likely to get the best deals on airline tickets. You can use a tool like Google Flights to monitor the prices and find the cheapest flights. Sign up for travel newsletters and keep an eye out for deals.

Consider planning an all-inclusive vacation. Not only will you be able to save time planning your trip, you may save money, too.

March and spring breaks are peak times for travel. Try to avoid booking a trip during this time. Ditto for flying out on weekends (especially Family Day long weekend). Flying out on a weekday or taking a redeye flight can help you save on your airline ticket.

By planning in advance you can save yourself big bucks on winter your trip. Don’t wait until there’s a foot of snow outside to plan you trip. Start planning in the summer or fall for the best deals on winter travel and keep more of your hard earned money in your pockets where it belongs.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.