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Not all debt is created equal - and not all debt is bad. In fact, if you’re looking at purchasing a property in Oshawa, or anywhere in the Durham Region, you need some debt to establish a good credit rating. Being a responsible borrower means knowing which types of debt can help you reach your financial goals, and which types leave you further behind. So how do you distinguish between debt that's good and maybe not so good? Well, good debt includes any investment or purchase that helps improve your overall financial position as explained in the following:
Mortgage loans. In Oshawa, and throughout the Durham Region, we are benefiting from historically low mortgage rates, and over the long term, properties in Oshawa have gained significantly in value. As you pay down your mortgage, the equity in your property builds. As a result, the combination of low mortgage rates and increasing home equity creates smart debt for the Oshawa homeowner.
Investments. Certain investments generate income and capital gains. Often, the interest expense on the money borrowed for investment purposes is tax deductible. Borrowing money to maximize your RRSP contributions is also considered good debt, since you're investing in your future and benefiting from tax sheltered investment growth.
On the flipside, there is also bad debt. This involves purchases where the value of the investment becomes lower than the original cost of that investment. It carries a high rate of interest, and make them a lot harder to pay off as explained in the following:
Credit cards. Though you need to activate and use at least one credit card to generate credit history, irresponsible use can get you deep into debt. If you usually carry a balance on your card and make only the minimum payment each month, you'll end up paying significantly more in the long run.
Buying a new vehicle. Before you run downtown to your nearest Oshawa Car Dealership and start shopping for new wheels, keep in mind that cars start depreciating in value as soon as you drive them off the lot. Try not to buy more car than you need!
Deferred purchases.Be wary of advertisements for big purchases like furniture or home electronics at places where you "do not pay until 2015!" Sellers add financing charges to the cost of these items, and you could also be slapped with a steep interest rate until these items are paid off.
Preventing or reducing credit card or other bad debt may seem overwhelming at first, but it is manageable. Try to avoid cash advances, since these carry high interest penalties; use your debit card or cash instead. Only use your credit card to buy what you can afford, and pay off the balance in full each month. If you’re still unsure about your debt situation, set up a meeting with your local Oshawa mortgage broker. He or she can walk you through your finances and advise you on how you can use your home equity to trade bad debt for smart debt, and give you some financial breathing room. The right refinancing package can help put an end to the monthly squeeze of too much credit card debt or too many loans, and help you get back into your financial comfort zone.
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