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Make Good Use of Credit

Credit can be a convenient way to help you achieve some projects. Use it carefully to avoid getting knee-deep in debt.

Your project and game plan

Buy a car

Winning strategy: put down the largest deposit you can afford to reduce the size of your auto loan and the length of time you make payments.

Ideally, you should have saved enough to pay cash for your car. Sceptical? Learn more by reading Buy a car.

The next step: See How to save

Buy a home

Here’s a tried and true way to buy a home with satisfaction and peace of mind: make the largest downpayment you can to bring your mortgage down as low as possible and then pay it off as quickly as you can to bring your interest costs down to a minimum.

To pay the least amount of interest and make your home the most profitable investment possible, plan to repay your mortgage over a period of 20 years but make every effort to pay it off in 17 years.

Does paying off your home in 17 years seem unrealistic? Look into it more closely because by doing so, you could save tens of thousands of dollars in just a few years.

To be able to pay off your home in 17 years, you need the discipline to follow these rules:

  • Save as much as you can toward the purchase of your home, with the goal of making the largest downpayment possible to bring your mortgage down as low as you can. If your downpayment is more than 20% of the price of the home, you won’t need the additional mortgage insurance required by lenders.
  • Wait until you have the downpayment saved up before you start seriously looking for a home.
  • Select a home you can pay off in 17 years, meaning one that probably isn’t your dream home on every level but where you can live comfortably instead of being cash-strapped.
  • Once you’ve bought your home, don’t make any unnecessary purchases and focus on the challenge of paying off your home in 17 years. The satisfaction you’ll get from seeing the amount you owe steadily decrease from day to day will be well worth the effort.

The next step:

Pay for school

A better education can often land you a better-paying job. That’s why borrowing for school or training is an investment in your future. Nevertheless, try to repay your student loans as quickly as possible to keep your interest costs down to a minimum.

Find out more:

Invest

You can borrow to invest in your RRSP and as a result, get higher tax returns. This is a money-making strategy if you repay the RRSP loan within the year.

Find out more:

Consolidate your debts

Some people borrow from their financial institution to be able to repay all their creditors at once, and have only one bill to pay to the financial institution. This can be to your benefit if the interest rate on the loan from the financial institution is lower than the rates charged by the other creditors.

Renovate your home

You can re-borrow money already paid on your mortgage to make home renovations. But be careful: this is a winning strategy only if the payments don’t cause you to be too cash-strapped and if the renovations add value to your home.

To make sure this is the case, see a financial planner and a real estate professional before you embark on the project.

Start or develop your own business

If you have a sound business plan and projected financial statements, a loan can help you bring together all the conditions necessary for success.

Find out more:

The next step

Credit cards can also be convenient in some circumstances. To find out more, see Credit cards: use these tools wisely.

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