Get your life back on track

The majority of Canadians are going through rough times. The economy isn’t growing as fast as everyone hoped, debt is increasing across the board, and average people are feeling the squeeze. Interests rates are at historical lows and this means investments haven’t been generating the same kind of returns that they were just twenty years ago.

That’s the bad news. The good news is there is a way for you to thrive and succeed even in these kinds of conditions.

The first step is creating a clearly defined financial plan and that means taking responsibility and working towards eliminating your bad debt.

Bad debt, for our purposes here, is anything that is unsecured, has a high interest rate, doesn’t generate cash flow, and doesn’t appreciate in value. Normally those two things go hand in hand.

In order to get your life back on track and get you on the path towards financial freedom, you need to know where you are, where you want to go, and how to get there.

Take an honest assessment of your current situation. Be ruthless. Treat yourself as if you were a close friend that has asked you to help them decide what to do. Lay out your bad debts and find out what they are actually costing you each month in terms of interest.

That’s where you are right now. Where you want to go, at least in the next few years, is towards eliminating your bad debt, freeing up your cash flow, and using the extra money to increase your wealth.

Consolidate your debts

financial plan

Since you are a homeowner, the way we are going to accomplish that is by using the equity in your home to consolidate your bad debt and reduce the amount of interest you are paying each month.

Remember, paying interest is how you make other people wealthy with your money, rather than building your own wealth.

Save money and increase your cash flow

By consolidating your debts with something like a HELOC (Home Equity Line of Credit) or a second mortgage, you can go from paying 24% interest on a variety of credits cards to paying as little as a few percentage points.

This could mean increasing your cash flow by hundreds or thousands of dollars a month. Money that you can use to pay down your mortgage faster and get on the path towards wealth building and financial freedom.

Avoid losing your house

If you’re at risk of losing your home, facing down a bankruptcy or a consumer proposal, then you are in truly dire straits. As far as following the plan to securing your financial future, you’re looking at taking several steps backwards instead of forwards.

A mortgage broker may be your only option to keep your life on track. In most situations, there are options that can help you avoid losing your home and damaging your credit for years to come.

Work with a broker to explore your options before you make any drastic decisions that can hold you back considerably.

Reestablish your credit

Credit is often misunderstood. Most people have no idea how their credit will impact their finances, how the credit system works, and what they need to do to ensure they are playing the credit game to win.

The first point is that a low credit score will cost you thousands of dollars in interest, gigantic upfront payments, or prevent you entirely from ever getting a mortgage or a loan.

Richard Moxley has written an excellent book called The Nine Rules of Credit that lays out the ground rules you need to follow if you want to win the credit game. I definitely recommend that you give it a read but I’m going to give you the cliff notes version here.

Some of the major points are that having high balances on your credit accounts will lower your score, and you need to focus specifically on making your payments on time, even if they are just the minimum payments.

In terms of your mortgage, the following chart shows the impact your credit score will have on your savings over time. It’s based on a $300,000 5-year fixed mortgage with monthly payments over a 25-year amortization.

Credit TypeRatePaymentMonthly SavingsSavings over 5 yearsSavings over 25 years
Excellent/Amazing credit 680+3.09%$1433.63$510.83$30,649.80$153,249.00
Good Credit 630-6793.29%$1464.75$479.71$28,782.60$143,913.00
Fair Credit 576-6294.64%$1683.85$260.61$15,636.60$78,183.00
Poor Credit 300-5756.14%$1944.46N/AN/AN/A


As you can see, having good credit can mean the difference of paying more than an additional $150,000 in interest over the life of your mortgage than if you had poor credit.

So now that we understand how much having a low credit score is costing you, you can start to take steps to improve it.

As we said before, having a high balance on a credit account (credit card, loan) is killing your credit score. How high is high you ask?

Anything higher than 50% of your total limit is actively reducing your score each month.

This is why consolidating your debts can make a big impact on your life. Not only will you take debt that you’re paying high interest on and turn them into low interest debt, but because your balances will go to below 50%, your credit score will gradually begin to increase. And that will lead to you keeping even more money in your pocket.

You would be surprised how quickly your credit situation can change over six months.

Tap into your dormant equity and get your money to work for you

Once you start making some progress towards your financial future, you get into the position where your money can start working for you instead of other people.

And this is an area that most people would not think their mortgage broker can help, but they would be wrong. A brokerage like Ardent Mortgages will be able to help you leverage the equity you are building in your home and turn it into funds you can invest.

Generally speaking, there only a few ways to build wealth in this world. Own real estate, own assets, or build a business.

We’re going to focus on the first two, not that you can’t go build a business! If that’s your plan, go for it! The world certainly needs more entrepreneurs.

One of the most common methods of generating wealth with real estate is by leveraging the property you already own to acquire additional properties that you then rent out. The rent you charge pays the mortgage on your rental property, which then leads to more equity generated. Then you rinse and repeat and start building your empire.

Alternatively, if owning rental property isn’t your thing, investing in assets is the other best use of your equity.

Lots of people have equity in their home that isn’t doing anything for them. Granted, you won’t be paying interest on that money anymore and that’s great. But what if you could take that money and put it work for you?

As an example, if you work with an Ardent Mortgages agent they can help you access your home’s equity via a HELOC or second mortgage, typically at very low interest rates, and then refer you to one of our investment partners. If you decide to invest that money with them you can receive a consistent 8.24% return on your money.

Take the profit off the spread, write off the interest of the loan, and your laughing to the bank.

If that sounds interesting, click this link to schedule a call with us to discuss your options.

Building true wealth is like dragging a sled loaded with rocks up a hill. At first it’s hard. You have to cut costs, pinch pennies, and save whatever you can just so you can start eliminating debt. Especially as a Millennial, if you graduated into the recession with thousands upon thousands of dollars of student debt, you know what I’m talking about.

financial plan

But eventually the hill starts to level off and the rocks (debt) fall off. This is when you are making progress towards saving money and eliminating debt. The tipping point comes when you start using your money to make money.

Once your money starts working for you, and you keep reinvesting and building the passive income side of your wealth, you have reached the top of the hill. Financial freedom is when your passive income from investments and other assets covers your expenses and then some. Basically, once you no longer need to work. From there you are just riding the sled down the hill, and for the sake of the metaphor, making course adjustments and avoiding random obstacles and bumps on the way.

But to get to financial freedom, you have to start somewhere and leveraging your equity is the first step.