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Posted Consumer Debt

Personal Debt levels are now better? Happy Canada Day!

Remember those reports in the media about how our Personal Debt levels were rising at an alarming rate?  There was huge concern that we were borrowing more than we should… that we could be headed for trouble…. The Bank of Canada warned about rising household debt levels….

And remember on May 13th, I reported that this needed a closer examination… that perhaps our debt levels were higher than other G20 countries for other logical reasons…..maybe we are borrowing at these record rates to invest, to do other practical things…??

Well, oddly enough, a new report from the CIBC states that Household credit is softening… we are not running wild and spending like drunken sailors….  The sky isn’t falling… hooray!

Happy Canada Day!

Posted Consumer Debt

These Eggs do belong in one basket

Our parents taught us to pay our mortgage off quickly… Great advice, but they forgot to tell us to not incur other debt while we were paying that mortgage off….

A few years back, there was a study done about Debt Diversification by Moshe Milvesky, Associate Professor of Finance at Schulich School of Business Milevsky debt review.   The study showed that we were using the old rule of ‘Don’t put all your Eggs in One Basket’ and applying that to our debts.   And this is exactly what you should NOT be doing…

Investment diversification is GOOD, Debt diversification is BAD.   The study used $95,000 as a typical amount of diversified debt and $2,700 in idle cash…. the conclusion is that this combination results in a $1,000 loss per year by not managing debts properly.

If you have equity in your home and you carry a balance on your credit card, line of credit, or have a car loan or student loan, then you should consider utilizing the equity to borrow at the lowest rates possible… Residential Mortgages are always the cheapest form of financing…