There are many reasons why paying off your debts is beneficial if you are looking to buy your first home in Canada.   Often, people will feel like there is no choice, they must either pay off their debts or save up for a down payment.  This article will give you inspiration and suggestions on how to pay off your debts to allow you to save up for your first home and get the money together to pay for your deposit.

paying off your debts

Know Your Interest Rates

Look carefully at which debts you have that carry the biggest interest charges and get these seen to first of all.   Make sure you look at the annual interest rates comparatively, as some companies will only produce the monthly interest rate which can appear at first to seem cheap.  Focusing on paying off one debt at a time is an excellent way to have a clear goal and subsequently a clear achievement when it is paid off.   Knowing precisely which debts are costing you the most will allow you to plan sensibly an order in which to follow when deciding which debts to clear first. When you start paying off your debts you get closer to your down payment goals.

Transferring Debts and Balances

Now that you have worked out which debts cost you the most, and which you are paying higher interest rates on, it is an excellent time to look at transferring balances and moving your money around.  There are financial institutions out there who occasionally have offers available to customers for the transferring of balances – all you need to do is ask!  It is worthwhile calling your existing debts up in the first place to request a lower interest rate.  Some will give you this – some will not.  You will be able to work out if you can move any balances around to get a better interest rate. For example, if your loan is attracting a higher rate of interest, compared to that of your credit card, and you also have the available credit limit to accommodate this; moving the balance and clearing your loan will instantly save you money on interest and also reduce the amount of debtors that you have to pay. Transferring debts and balances is an important step in paying off your debts.

Pay off More Than You Need To

While it might be tempting to pay the minimum requirements, this can be exceptionally counter-productive.  It can draw out the time it will take you to pay off your debts, and depending on the interest rates, sometimes your balance will hardly reduce at all.  Paying extra will help, even if it’s just a small amount, most minimum payments will cover interest costs and don’t reduce your debt owed. Paying off your debts goes faster when you pay off more than the minimum amounts.

Consolidating Debts

Either your credit union or your bank can assist you with a consolidation loan, allowing you to lump together all of your individual debts, into one manageable monthly payment, often at a much lower interest rate.   This is a really useful step to take in order to help you to feel in control of your debts.  This should enable you also to save money at the same time, as you will have a reduced liability regarding the interest which can immediately be put to one side and saved.  What is also key to this step is that you also stop paying out more than you are getting in, use your loan as a tool to help you create and stick to a spending plan.

Do Not Spend More Than You Earn

If we look at the reason why you got involved with these debts in the first place, it is a simple explanation.  You needed to purchase something that you couldn’t pay for in full, at the time.  All of the steps outlined above will only be effective if you learn how to stop spending more than you earn. An excellent way to see where your day to day money is going is to keep hold of every receipt for a week, or for a month.  You will then be able to categorize these receipts and see exactly how much money is being spent where.  Are these expenditures necessary, are they essential? Or, are your morning, midday and afternoon coffees preventing you from saving towards your goal!

Whether you are paying extra interest on credit cards or loans, paying off these debts is an absolute must if you are serious about saving for your down payment.  Reducing your debts brings a wealth of advantages, not least of all to mention it can help you with your mortgage application too!