Personal finance is often plagued by conditional “it depends” and “on the one hand” advice that fuels confusion. So let’s try something simple and straightforward for 2023 and call it the year of debt repayment. With mortgage rates and home equity lines of credit between 5 and 6%, you can be sure the best use of your money is to reduce the amount you owe.
Need something more to motivate you to reduce your debt? Let’s try this – a quick test to see how your mortgage, credit card, line of credit and car loan debt compares to average levels. The level of urgency to pay off the debt depends as much on your financial means as on the amount you owe. But comparing your own borrowings to average levels at least gives you a point of comparison to see how you’re doing.
Here are the average balances due for the third quarter from credit reporting company TransUnion:
- Credit card: $3,913
- Car loans: $26,082
- Lines of credit: $34,968 (home equity and unsecured combined)
- Mortgages: $343,612 (recent and longtime owners combined)
The average debt figures tell more of a story of moderation than of overspending. Credit card debt was up 9.4% from a year earlier, but still down 6% from pre-pandemic days in 2019. Line of credit debt was up 4.6 % over the past year, but remained 1.7% lower than 2019. Loans were up 3.5% from last year and 7.4% from 2019, but all Everyone knows that car prices have skyrocketed. The average mortgage balance per consumer increased 9.3% year over year and 25.6% from 2019.
Including the rate hike announced earlier this week, the Bank of Canada has raised its borrowing costs seven times since March. If you’re barely able to pay what you owe, forget about reducing your debt and focus on getting by until rates start to drop.
But if you have the resources, paying off debt is a “guaranteed results” way to get your money working in 2023. Pay off credit cards first because of high rates (around 20%), then look at loans, lines of credit. credit and mortgages. Reducing a mortgage balance before renewal helps offset the impact of higher rates.
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Rob’s Personal Finance Reading List
Is AAC worth the cost?
I say yes. I had them replace a battery while I was stuck in a parking lot, change tires, and tow cars multiple times. In addition, the CAA card gives us discounts on hotels and parking at the airport in Ottawa, where we live. Now for an analysis by a personal finance blogger who outlines some alternatives.
Speaking of cars…
Here’s a look at how auto insurance costs could be affected by some of the big auto trends of 2022, including the popularity of electric vehicles.
How to pay for your cell phone
Thoughts on whether to buy your phone outright or finance it through the plan with your cellular service provider.
The year of dividend investing
A blogger who focuses on dividend investing lists five stocks he bought this year. Not all worked.
Ask Rob
Q: I’m going to retire in a year or two and I wonder if you could do an article on annuities? With interest rates rising, is it time to buy soon?
A: This is my last article on annuities, which was published over the summer. At that time, annuity payments had increased by about 15% year over year. Let me know if you would like an update on annuity payments.
Do you have a question for me? Send me. Sorry I can’t answer each one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
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The cashless zone
All-female alt-rock band Prima Queen have released a few singles this year, and they’re all really good. My favorite is Eclipsewhose lyrics made me think of Aimee Man’s song To get closer.
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