Borrowing money to enhance your personal wealth or education constitutes good debt or “constructive debt”. A mortgage, RRSP loans and student loans fall into this category. This type of debt enhances your lifestyle and career satisfaction.
Almost anyone can get a credit card whether it is solicited or unsolicited. This type of debt is bad debt and considered “destructive debt.” You can recognize it by applying the following four criteria:
It is incurred for consumption purposes. The money is borrowed to purchase goods or services, not for business, education or investing purposes
It carries a high interest rate
Servicing the debt requires a disproportionate share of household income. It costs you more each month to meet the financing payments than you are comfortable with
Interest on the debt is not tax deductible
In dealing with credit card debt, the number one rule is don’t have any and the number two rule is to pay off your balance every month. If you do have to carry a balance, reduce your interest rate. Credit card rates are typically approx. 20% and department store cards are over 30%. One way to reduce your interest cost would be to obtain a home equity line of credit. If secured on your property, the rate would be between 3.5-4% and would enable you to pay off the principal faster.
You could also look into the following credit cards, which offer lower rates: MBNA TrueLine MasterCard, Capital One Fusion Platinum MasterCard and Capital One SmartLine Platinum MasterCard. There are other credit cards available, just make sure you check the fine print.
If you would to discuss some options available, I offer a complimentary, confidential financial assessment.
Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.
To contact Colleen, please fill out the form on www.mortgagesbycolleen.ca or call 416-459-2406