5 Ways to Stay Out of Debt with a Monster Mortgage

Debt is a major problem in Canada.

For every dollar a household earned, they owed $1.69 in the second-quarter of 2018, up from $1.68 in the previous quarter, according to Statistics Canada. With interest rates on the rise, financial experts are warning borrowers about getting too much into debt, something that is only intensifying as the years go by.

From automobiles to houses, consumers are borrowing to get their hands on these expensive assets. They’re also borrowing to cover their day-to-day living expenses. And that’s a sign you’re in trouble.

But what happens when you have a monster mortgage? Well, it’s hard to stay out of debt, but you must!

Here are five tips for staying out of debt with a monster mortgage:

1. Know Your Financial Limits

If you are a new homebuyer in one of the major Canadian housing markets – Toronto, Vancouver, Montreal, or Ottawa – then you are already saddled with a monster mortgage, say $900,000.

That’s a lot of money to borrow for a three-bedroom bungalow or a three-bedroom condominium. No matter how much you earn, it can be difficult to make monthly payments, which can create great consternation that you will go into debt just to stay above water and maintain your living standards.

If homeownership in the big city is your dream, then you need to make compromises in other areas of your life. In other words, you need to know your financial limits.

For instance, you can’t go for that $5 morning latte anymore, you can’t go on lavish vacations three times a year, and you can’t have a Cadillac mobile phone plan.

Otherwise, before you know it, you’re going to be stretched thin, and you’ll start going into debt.

2. Make a Budget & Stick to It

One aspect of debt relief, as well as staying out of debt, is to make a budget and ensure you and the household sticks to it. A monthly budget is essential to surviving life – knowing where the fruits of your labour are going can be of tremendous assistance.

So, on a brisk Sunday morning, grab a cup of coffee, comb through all of your finances, and establish a budget. Indeed, the top of your list will be your mortgage payments – and then everything else.

The most important thing you can do is to review your budget every month to make sure you are abiding by the limits you set for yourself. What’s the use of a budget then?

3. Limit Your Use of the Plastic

The easiest way to get into debt, break the bank, or abandon fiscal responsibility is to use the piece of plastic in your wallet for every transaction. A cup of coffee? Tap. A trip to the clothing store? Insert. A midnight rendezvous on Amazon? Key in.

That said, when you have a monster mortgage, you cannot perform these types of transactions anymore because you will ultimately set a trap for yourself.

The more you pile onto your credit card, the harder it will be to keep track of. Then, after a little while, one missed payment will turn into two, then two into three, and before you know it, you’re stuck with a large pile of debt that you have no idea how to pay off.

4. Use Extra Cash for Your Mortgage

Buying a house is the biggest purchasing decision you will ever make in your life. Moreover, having a mortgage is the biggest kind of debt you will ever possess in your lifetime. Your goal is to pay it off as fast as you can because nobody wants to hang on to that amount of debt longer than they need to.

So, how can you ensure your $1.2 million mortgage can be paid off faster than the 20-year amortization period? That’s easy: Use any additional cash you have at the end of the month to pay it off.
Whether it is a tax refund or a raise at work, any time you have more money on you, don’t waste it on frivolous items that you’ll eventually forget about it.

5. Don’t Keep up with the Joneses

Should you have a $1.5 million mortgage in Toronto, then chances are you are residing in an expensive neighbourhood of the city, like Leaside or Forrest Hill. Your neighbours are likely in the same boat as you are, but they may not be as fiscally prudent as you are.

That said, you may fall into the habit of trying to keep up with the Joneses by trading your sedan for a luxury automobile, going away for the weekend to a cottage you can’t afford, or purchasing the latest technologies to show off to your neighbours.

This is the worst way to go through life; it will never make you happy.

Moving forward, don’t keep up with the Joneses. Instead, keep up with your mortgage.