BMO: Keep a Strong Credit Rating to Avoid Your Own Debt Downgrade
The average household debt load in Canada, including mortgage, credit card, line of credit and loan debt, is $112,329 – While 25 per cent of Canadians are debt-free, 41 per cent say that they have taken on more debt in the past five years as a result of increased spending
TORONTO, ONTARIO–(Marketwire – Aug. 13, 2012) - While global stock markets continue to be affected by uncertainty in Europe, last year in August the markets were contending with another challenge – S&P’s downgrade of U.S. debt. On the anniversary of that announcement, BMO reminds individuals to look at their own credit situations.
“Managing debt is a major priority for economies around the world, but it’s also an important concern for consumers,” said Janet Peddigrew, Vice President, BMO Bank of Montreal. “A BMO survey reveals that one in three Canadians are living at or beyond their means, and 41 per cent say that they have taken on more debt in the past five years as a result of increased spending. It’s important to maintain a healthy credit rating to ensure you are not affected by excessive debt.”
“Canadian households may not have difficulty servicing debt now because of low interest rates,” said Sal Guatieri, Senior Economist, BMO Capital Markets. “But now is the time to manage debt, before interest rates climb in the future.”
BMO Bank of Montreal offers these five tips to avoid your own debt downgrade:
Create a budget and stick to it - Spend less than you make. Develop a budget that establishes how household expenses will be paid and how spending will be managed. Take advantage of free online tools, such as BMO MoneyLogic, to help stay on top of everyday household spending and saving.
Manage credit card debt – Pay down credit cards, beginning with those that carry the highest rate, and consider using a low rate card for purchases. For instance, the BMO Preferred Rate credit card offers low interest rate options of 11.9 per cent for an annual fee of $20, or 17.5 per cent with no annual fee
Invest to save – Set up a Tax-Free Savings Account (TFSA) or high-interest savings account, such as the BMO Smart Saver Account, to set aside extra cash in case of an emergency. Also consider using Exchange Traded Funds (ETFs) to reduce management expense fees.
Become mortgage free faster – With a shorter amortization and by increasing monthly payments, you can have a mortgage burning party sooner – and save thousands of dollars in interest costs over the life of your mortgage. Additionally, consider increasing the frequency of your payments and/or making lump sum payments to pay down your mortgage faster. For example, by making a lump sum payment of five per cent of the original principal each year, you can pay off a 25-year mortgage in less than 12 years.
Have a plan B – Plan ahead and develop a fall back plan in case you are unable to meet your financial obligations due to unexpected circumstances, such as loss of work, or damage to personal property, including your home or vehicle.
To learn more about how to better manage your spending and savings goals, please visit bmo.com/smartsteps. For information on BMO MoneyLogic, please visit bmo.com/moneylogic.