House Rich, Cash Rich: You Can Have it All - Part 5
Eric Putnam
Burlington Post
September 2009
Dreaming of your own home? By doing a few smart things now, you can be house rich and cash rich.
Part 5: Don’t let Debt Derail your Dreams
Sam and Yasmine were doing lots of planning for their wedding and their first home together. They met with their bank representative to discuss financing for a condominium they wanted to buy prior to their wedding. While they were aware they had been burning through quite a bit of money over the past few months, they weren’t aware that their spending could derail their home buying plans.
As the banker explained to them when she reviewed their credit profiles, Sam had been late with a couple of car lease payments and Yasmine had skipped some payments on credit cards. While these didn’t sound like serious problems to Sam and Yasmine, to the banker these were red flags signalling that the couple was a questionable credit risk. She advised them to spend some time cleaning up their personal finances before applying for a mortgage.
There are a number of ways to reduce debt, boost your credit profile and become a more appealing mortgage candidate.
Combine balances on multiple credit cards onto one card with the lowest interest. Ask the credit card company with the lowest interest rate if it will reduce the rate even more if you merge the balances on all of your cards onto that particular company’s card. If the company agrees, then transfer the other balances, cancel the other cards and pay down the balance with the money you save on interest payments.
Take out a debt consolidation loan from a financial institution to combine and pay off multiple higher-interest debts. Instead of making several payments to different creditors, this allows you to pay off your balances with the loan and make only one monthly payment.
Set up a debt management plan with a qualified financial counsellor. This professional can negotiate with your creditors to reduce interest and fees and/or extend the amount of time required for you to repay your debts. You then make one monthly payment at an agreed rate of interest to the counsellor who pays your creditors.
Present a proposal to your creditors: If you owe $5,000 or more and simply cannot repay all of it, you can make a proposal to your creditors – this is a formal offer to repay a portion of the debt over a period of up to five years, according to your financial capability. The proposal must be arranged with a trustee in bankruptcy, accepted by the majority of your creditors and approved by the court. Once this happens, you make payments to the trustee, who then pays the creditors.
Sam and Yasmine’s story had a happy ending. They decided to take out a debt consolidation loan, cancel all but one credit card each and discuss with each other any potential major purchase before actually buying. Within a few months they had cleared up their debts and improved their credit records. They had a wonderful wedding – and their condo dream came true.
By taking control of debts, your dreams can come true too ….
Eric Putnam is a senior advisor with BDO New Beginnings (www.bdonewbeginnings.ca) and Joyce Brown is a counsellor with BDO Dunwoody Limited (www.debtworries.ca). Both help individuals resolve their financial problems. You can reach Eric at 1 (866) 926-4700 or eputnam@bdo.ca and Joyce at (905) 524-1008 or jbrown@bdo.ca.
