Buying on credit and taking out loans have become commonplace, but consumers who spend beyond their means can end up with an unmanageable debt load, and put themselves at great financial risk.
As it relates to getting a mortgage, debt can hit you three ways, making the prospect of getting a mortgage seem impossible. Here's why:
When you decide to tackle your debt, it is important to have a plan that will work for you. If going into debt has harmed your credit rating, you also need to take action to rebuild your credit. A poor credit rating will affect your ability to qualify for a mortgage to buy your own home.
The task before you is simple, though perhaps not easy. There are two parts:
Deciding to tackle your debt can seem overwhelming. The first step is to make the decision to be debt-free; the next step is to identify a plan to get there.
Create a list of all your debts. As scary as this step may seem, it is important to realize the total amount you owe. For each debt, list the total amount owing, the minimum monthly payment and the interest rate. Your list could include:
Part of managing your debt is understanding how you got there. When you made a purchase in the past, did you consider the total cost of the item? If you could not pay for the purchase in cash and needed to borrow money, the total cost was probably higher than the sticker price.
To figure out how long it will take you to pay off your credit card balance, try FCAC’s Credit Card Payment Calculator Tool. This tool shows you how long it would take you to pay off your credit card balance if you only made the minimum payments, as well as options to pay off your credit card faster and pay less interest.
The types of debt you have and the amount of that debt will affect the strategy you choose to try to pay it off. You may choose to tackle your debt by yourself, or get help by using a third party, such as a reputable credit counsellor. No matter what strategy you choose, make sure the plan is achievable and realistic.
Please note: Some of this material is a reproduction of an official work that is published by the Government of Canada. This reproduction has not been produced in affiliation with, or with the endorsement of the Government of Canada.
As licensed professional mortgage brokers, we know exactly what it takes to qualify you for a mortgage and we do more than just get you a great mortgage at a great rate, we will show you the way, too.