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Managing Your Money
Yes, the holidays are over - but now is the best time to wrap up holiday (and other) debt
Welcome to the New Year, the perfect time for looking back, looking forward, and looking at that pile of holiday bills and wondering how it got so high. Add in all your regular payments - mortgage, car loan or lease payment, other credit card balances, and so on - that always absorb so much of your hard-earned cash, and your financial future can look bleak.
Trying to get ahead financially, investing in a future you can truly look forward to - that's a difficult task, especially at this time of year. It's tough to find money for the investments you know are important to achieving your life goals. Or even to come up with enough cash to make your maximum RRSP contribution - and you know how vital that is to one day realizing the retirement of your dreams.
You're not alone. In a recent Investors Group survey* Canadians were asked, 'When deciding how much money to put into your RRSP, what is your most important competing financial obligation?' Among the top three answers: 'reducing debt' and 'funding family expenses'.
If your current debt and repayment burden is weighing you down, there is a solution. It's called debt consolidation and it can help pull you out of the debt spiral while increasing your ability to invest, especially in your RRSP. Here's how debt consolidation can work for you:
Target high-interest, high-cost loans. You can consolidate debts such as medical bills, car payments, education loans, lines of credit and other high-interest debts like credit card payments into one, lower-interest loan. The benefits are a single, more affordable monthly payment that is usually much lower than the many monthly payments you were making previously. A consolidation loan can help you regain control of your finances, ease your cash management, generate new savings, allow you to establish a repayment plan that will actually eliminate your balances and, very importantly, reduce your stress levels.
Use your home equity. If you own a home, consider consolidating your debt through a home equity loan. You'll pay a much lower interest rate than you do on your credit cards (which can range from 19 percent to over 28 percent for a retail card), and when you keep your amortization period the same, your overall lower interest rate will create additional cash flow that you can use to help meet your other financial goals.
Once you've got your debt under control, you're free to look at strategies for making the most of your new-found investment dollars. One of the most effective is through a PAC - a Pre-Authorized Contribution program - the trouble-free investment plan that delivers benefits like these:
Automatic investments - each month, have an amount you choose debited from your bank account and invested on your behalf.
Eliminate your annual money scramble - by making regular RRSP contributions , you not only put your money to work all year round, the RRSP contribution deadline becomes just another date on the calendar.
Enjoy the value-added benefits of dollar cost averaging - by investing regularly, you are able to acquire a larger number of securities, such as mutual fund units, when the price is lower and fewer when the price is higher. Over the longer term, your average cost per unit should be lower than if you had made lump sum payments, and your overall returns could be higher.
By taking action on debt consolidation, taking charge of your investment life and wrapping all your hopes and dreams for the future into a sound financial plan, you can look forward to the future with confidence. A financial advisor can help you to see and live all your tomorrows exactly the way you want.
*Survey results based on an annual Investors Group poll, conducted via a Decima TeleVox national telephone survey with a representative sample of 2,035 adult Canadians between September 11-21, 2004.
This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
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