As cash reg­is­ters ring for the holi­days, in­ter­est rates sting on lines of credit

Ris­ing rates are hit­ting Cana­di­ans car­ry­ing bal­ances on pop­u­lar bor­row­ing tool

StarMetro Toronto - - DAILY LIFE - LES­LEY-ANNE SCORGIE PER­SONAL FI­NANCE AU­THOR & MEVEST. CA FOUNDER

Noth­ing feels like the holi­days more than higher li­neof-credit in­ter­est pay­ments — not!

The Bank of Canada has raised rates five times since mid-2017. Banks in Canada have fol­lowed suit and nudged up their rates, nat­u­rally, be­cause th­ese are tied to the Bank of Canada’s key lend­ing rate.

The un­for­tu­nate fi­nan­cial re­al­ity this hol­i­day season is that it’s got­ten more ex­pen­sive to carry a balance on your line of credit be­cause of ris­ing rates, which have not been iso­lated just to new home­buy­ers seek­ing mort­gages.

I’m call­ing out lines of credit in this ar­ti­cle specif­i­cally be­cause they have be­come an in­cred­i­bly pop­u­lar bor­row­ing tool for Cana­di­ans over the past two decades. This is be­cause lines of credit are flex­i­ble, you can pay them off at your leisure and bor­row what­ever your want so long as it stays within your al­low­able limit and you cover the monthly in­ter­est pay­ments.

The prob­lem for Cana­di­ans is that those monthly in­ter­est pay­ments are climb­ing; in many cases, they’ve dou­bled in 18 months and could be push­ing your bud­get over the top. Here’s what you can do :

Find room in your bud­get to make larger pay­ments to the balance

I know this is eas­ier said than done, but think about ways to re­duce other ex­penses to make room for a higher pay­ment to­wards your line of credit balance. Could you cut back on your dog-walker and can­cel

your sub­scrip­tion to ca­ble? The faster you pay down the balance, the less in­ter­est you pay. That’s be­cause the in­ter­est charges are based on the balance owing. So as that de­creases, so will the in­ter­est pay­ments.

Sell things you own and make a lump-sum pay­ment

It’s amaz­ing the things we col­lect in our homes, clos­ets, garages and stor­age lock­ers — skates, lawn mow­ers, hoses, shoes, Christ­mas trees, cars, scoot­ers, strollers, toys and more. So if you’re car­ry­ing a balance on your line of credit, you might want to sell the things you don’t re­ally need. Then take this money and make a lump-sum pay­ment on your line of credit. Not sure where to start?

Take an in­ven­tory of what you could do with­out, snap some at­trac­tive-look­ing pho­tos and post on your favourite sec­ond-hand web­site, such as Ki­jiji.

Just watch out for scam­mers and never give away your bank­ing in­for­ma­tion.

If your line of credit is un­se­cured, se­cure it

Lines of credit are ei­ther se­cured against an as­set, such as a home or a car, or noth­ing at all, mak­ing them un­se­cured. The first is safer for the lender be­cause if you de­fault, they can take your as­set away. That’s why se­cured lines of credit have lower in­ter­est rates. Un­se­cured lines of credit are gen­er­ally of­fered at a much higher rate. So, if your lender can make the op­tion of a se­cured line of credit avail­able to you at a lower rate, take them up on it.

Look for a lower rate

This can also be ap­plied to all higher in­ter­est rate loans and bal­ances. When you bun­dle them to­gether, they can be con­sol­i­dated into one pay­ment at a lower in­ter­est rate. Hunt for lower rates for lines of credit, and if you own a home, it might make sense to roll your debts into your mort­gage so long as there aren’t hefty fees to do so.

Some­times you need a line of credit to help you through a rough patch, to fund a ren­o­va­tion, to pay for school or to cover your hol­i­day gift bud­get (a bad idea by the way). But, if your line of credit balance is go­ing up and not down, you have a spend­ing prob­lem and need to cut back. Why not make it your New Year’s res­o­lu­tion to crush your line of credit balance, and those pesky in­ter­est pay­ments.

DREAM­STIME

Why not make it your new year’s res­o­lu­tion to crush your line of credit balance?

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