How To Crush Your Debt Load Before Buying A HomeApr 30, 2019
Many millennials dream of owning a home. But if you are burdened by student debt, car payments and other kinds of consumer debt, it can be hard to make your dreams a reality. Eliminating your debt load can help you reach your goal.
Canadians are spending more income on household expenses than ever before. In addition to the monthly mortgage payment, you have taxes, utilities and maintenance to worry about. After taking care of these expenses many homeowners struggle to pay for things like food and internet.
A high personal debt load is a major hurdle to being a homeowner. While debt is not unusual, the Globe and Mail cites a recent study with some troubling news about millennials:
- Only 20 per cent of millennials aged 26-37 were debt free.
- About 60 per cent of millennials aged 18-37 described their savings as not much or none.
Scary right? These stats may not come as a surprise if you’re a cash-strapped millennial, but they send a clear message that many consumers need to focus on paying down their debt load before owning a home.
Here are three ways that future homeowners can get relief and stay on top of debt:
Have a budget. Whether you use a budgeting app, an online tool or a simple Excel spreadsheet, you need a budget to track your income and expenses. Those budget numbers will quickly let you know whether or not owning a home could be in your future.
But there’s more. It is also wise to create a second budget. What would your budget look like as a homeowner? A future homeowner’s budget paints a clearer picture of how life will change once you add a mortgage and other home expenses into the mix.
The Financial Consumer Agency of Canada has a handy worksheet to help you make a budget that includes all of the major costs of owning a home.
Have a goal. Once you know more about your current situation and have a better understanding of your future finances, you need to answer the big question: Are you ready to start shopping for a home?
If you’re carrying a high debt load, these questions are useful:
- How much would you need to pay off before you can really afford home ownership? Consider that you’ll need to pay off enough so you have room in your budget to save for things like a down payment, legal fees and moving costs — which can include basic or significant maintenance, and insurance.
- What would I need to give up in order to reduce your debt and afford a home in the future?
If your budget shows that you aren’t ready yet, it’s time to take control and take action.
Bridget Casey at Money After Graduation talks about seeing through your financial blind spots so you can balance and achieve your goals.
Have a plan. Seeing all of your debts in one place can be scary, but there is hope. You need a plan. There are two popular methods to tackling debt that might work for you: the debt snowball and debt avalanche strategies. Snowball allows you to pay off the smallest debts first to create a domino effect and see relief more quickly. Avalanche focuses on paying off debts with the highest interest rates, which might require more tenacity, but can save you money in interest charges.
Need more debt repayment inspiration? Here are six more strategies from The Good Men Project to help you get rid of your debt.
If your debt load feels overwhelming, the best option is to talk to a Licensed Insolvency Trustee. A professional can help you cope with the stress of your situation and discuss options for dealing with crushing debt.
Many millennials want to make owning a home a reality. If you are already carrying a debt load, check to make sure you can afford the extra costs. Use these tips to plan ahead so you can love and afford your first home for many years to come.
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