It’s been almost six weeks since the Bank of Canada (BoC) made its shocking interest rate cut announcement, and what’s followed has been a flurry of mortgage rate cuts and wars – plus a lot of theories about what it’ll mean for the Canadian housing market, as a whole, soon. We cover this, as well as strategies to wipe out your credit card debt, in this month’s RateHub Roundup.
Following January’s announcement from the BoC, there was some skepticism about how lenders would react to the news – especially when the big banks only dropped their Prime rates by 0.15%, instead of the full 0.25% suggested with the BoC’s cut. Fortunately for borrowers who were willing to shop around, some lenders slashed their mortgage rates even further, in order to bring in new business. Small lenders and mortgage brokers, in particular, were willing to sacrifice profits to get a bigger piece of the mortgage pie. By mid-February, some were offering variable rates below 2.00% and 5-year fixed rates as low as 2.39%. The best mortgage rates on our website today include a 5-year variable at 2.00% (Prime – 0.85%) and a 5-year fixed at 2.54%.
While many felt that the lower interest rates offered post-BoC rate cut would cause Canadians to borrow more and jump into the housing market sooner, one journalist believes our relationship with debt is about to change – and that it’ll do anything but help our economy. The theory is, of course, that as long as rates are low, demand for housing will remain strong. But what happens if more Canadians see the central bank’s rate cut as a worrisome sign of the economy? Couple that with the fact that the central bank also reported our housing market as being overvalued by up to 30%, and it’s no wonder why both home prices and number of sales are down. If people start to believe that home values won’t go up – and may even fall – low interest rates may not be so tempting, after all.
Late last month, it was reported that nearly half of all Canadian credit card holders (46% to be exact) were carrying credit card debt from month-to-month. BMO’s 2015 Credit Card Report found that 52% use credit cards to make the majority of their purchases, yet 32% don’t actually keep track of the amounts they charge to their cards – at least, not until the bill arrives in the mail. One quarter are stuck in a vicious cycle of paying off cards with all their available funds, then racking up more debt, which leaves them with nothing leftover to save. Repeat, repeat, repeat, and you can see why experts say that Canadians’ love for “charging it” is leading to a worrying cycle of debt.
So, how can you get yourself out of it? If you have multiple credit cards and multiple debts, the answer’s not always straightforward. You could try “stacking”, which involves paying off the card with the highest interest rate first, then continually moving down until you pay off the card with the lowest interest rate last. With this method, it’ll typically take longer to see progress (con) but you’ll pay less interest overall (pro). Your second option is to wipe out the card with the smallest balance first, then continually move up and pay off the largest debt last; this is known as “snowballing”. It’s helpful because you see progress sooner (pro), which can help you stay motivated (pro), but you’ll pay more interest in the end (con). Your other option is to seek help from a professional, or even consolidate your debt into a loan, so you only have to make one monthly payment.
No matter which option you choose, the first payment you make will be the first step in the direction of a brighter financial future. Good luck!