Throughout the Covid 19 pandemic, household debt has continued to rise throughout Canada. Canada has been the poster child for a high household income to debt ratio for years, with many economists focusing on the long-term effect of low interest rates. To compound the problem, wage cuts or job losses have left many Canadian households with a growing mountain of debt.
Although debt reduction should be approached after taking an individual’s circumstances into consideration, one option that makes sense for many people is debt consolidation. The goal behind debt consolidation is to reduce high-interest debt as soon as possible, often replacing it with a loan at a lower interest rate.
An example of this is broken out below:
The same $25,000 of debt under 3 different structures results in vastly different interest payments. Credit card debt is one of the most accessible forms of debt and often the most harmful to your wealth picture. By replacing this with a payment from a home equity line of credit, as shown in the example above, you would save $4,262.50 per year. These savings can be directly rolled onto the debt to help pay it off at a quicker pace.
One of the tools we use at Matco Financial is a base financial plan, which helps us to understand the personal circumstance of your wealth picture. We can then make informed recommendations on how you can set yourself up for success by moving towards your financial goals. A base plan takes your full financial picture into view, including assets and liabilities, in order to reveal areas where you can save or debts that could be repositioned. The goal, of course, would be to make changes that would increase your total net worth over the long term.
Please reach out to our team at Matco if you have any questions with regards to your personal wealth management picture; we would be happy to help.
Tom Stachiw, CIM
Portfolio Manager
Email: tstachiw@matcofinancial.ca
Local: +1-403-718-7792
MATCO FINANCIAL INC.
Founded in 2006 to manage and service seven family offices, today Matco offers the benefits of our extensive investment management experience to individual investors, foundations, endowments, condominium corporations, trusts, corporations and not-for-profit organizations.
Our mission is to simplify the investment world for our clients by understanding their needs and providing exceptional investment solutions that preserve and grow capital.