Let’s Talk Dirty – Part 3
Marci • January 12, 2012
Five Step Debt Reduction Plan
Our goal is to assess your debt then work to reduce it. The first half of building wealth is saving with your wealth account. The second half is to reduce your debt. Both need to happen at the same time.
Here is the 5 step plan:
Step 1 : Fill out the debt elimination box, listing every debt that is not secured against an asset.
| Debt Name | Amount $ (2) | Min Payment (3) | Interest Rate | Factoring # |
Step 2: The Factoring #
Take the number in column 2 and divide that number by the number in column 3. This is the “factoring number.” Fill in the factoring number for each debt.
Step 3: Priority Pay-off Box
Take the debt with the lowest factoring number and list it first. This debt is the first priority payoff. Continue to list the debts in order of their factoring number, with the lowest factoring number debt in first place, the debt with the second lowest factoring number in the next, and so on.
| Order of Payoff | Name of Debt | Factoring # | Min Payment |
Download my FREE Budget Spreadsheet HERE ……It will guide you through these steps.
Step 4: The Jump Start
At this point, you need to create a household budget. If you’ve never done one, I have tools and tips to help you with the process. A budget gives you a clear understanding of where your money comes from and where it is being spent. Budgeting also enables you to see what expenditures can be reduced or eliminated
Looking at your budget, in addition to the minimum debt payments required, you are also going to take $200 from your current spending and allocate it to debt. This may sound intimidating, but consider that $200 a month translates to about $7 a day. By reviewing your budget, reallocating $200 may not be as difficult as you think.
Step 5: Debt Payments
Take the debt listed first in the priority pay-off box and apply the $200 allocation to it. Continue to pay the minimum monthly payments on all your other debts. Once you have paid off the first debt, apply the same payment method to the second debt listed, and so on. Your commitment to making minimum payments while also applying the jump start allocation is vital. Also consider the accelerated payment that happens when, as you pay off one debt, its minimum payments stay within the debt pool (add to the $200) and contribute to the next debt’s payments.
By the time you get to the debt at the bottom – the one with the highest factoring number or the number of months to pay off the debt based on the original monthly payments – you will see that you will pay the debt off much faster than the factoring number states.
Download my FREE Budget Spreadsheet HERE ……It will guide you through these steps.
And just like that, no more dirty laundry!
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Alternative lending refers to any lending practices that fall outside the normal banking channels. Alternative lenders think outside the box and offer solutions to Canadians who wouldn’t otherwise qualify for traditional mortgage financing. In an ideal world, we’d all qualify for the best mortgage terms available. However, this isn’t the case. Securing the most favourable terms depends on your financial situation. Here are a few circumstances where alternative lending might make sense for you. Damaged Credit Bad credit doesn’t disqualify you from mortgage financing. Many alternative lenders look at the strength of your employment, income, and your downpayment or equity to offer you mortgage financing. Credit is important, but it’s not everything, especially if there is a reasonable explanation for the damaged credit. When dealing with alternative lending, the interest rates will be a little higher than traditional mortgage financing. But if the choice is between buying a property or not, or getting a mortgage or not, having options is a good thing. Alternative lenders provide you with mortgage options. That’s what they do best. So, if you have damaged credit, consider using an alternative lender to provide you with a short-term mortgage option. This will give you time to establish better credit and secure a mortgage with more favourable terms. Use an alternative lender to bridge that gap! Self-Employment If you run your own business, you most likely have considerable write-offs that make sense for tax planning reasons but don’t do so much for your verifiable income. Traditional lenders want to see verifiable income; alternative lenders can be considerably more understanding and offer competitive products. As interest rates on alternative lending aren’t that far from traditional lending, alternative lending has become the home for most serious self-employed Canadians. While you might pay a little more in interest, oftentimes, that money is saved through corporate structuring and efficient tax planning. Non-traditional income Welcome to the new frontier of earning an income. If you make money through non-traditional employment like Airbnb, tips, commissions, Uber, or Uber eats, alternative lending is more likely to be flexible to your needs. Most traditional lenders want to see a minimum of two years of established income before considering income on a mortgage application. Not always so with alternative lenders, depending on the strength of your overall application. Expanded Debt-Service Ratios With the government stress test significantly lessening Canadians' ability to borrow, the alternative lender channel allows expanded debt-service ratios. This can help finance the more expensive and suitable property for responsible individuals. Traditional lending restricts your GDS and TDS ratios to 35/42 or 39/44, depending on your credit score. However, alternative lenders, depending on the loan-to-value ratio, can be considerably more flexible. The more money you have as a downpayment, the more you’re able to borrow and expand those debt-service guidelines. It’s not the wild west, but it’s certainly more flexible. Connect anytime Alternative lending can be a great solution if your financial situation isn’t all that straightforward. The goal of alternative lending is to provide you with options. You can only access alternative lending through the mortgage broker channel. Please connect anytime if you’d like to discuss mortgage financing and what alternative lending products might suit your needs; it would be a pleasure to work with you.
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Chances are, buying a home is one of the most important financial decisions you’ll make in your life. And as mortgage financing can be somewhat confusing at the best of times, to alleviate some of the stress and to ensure your home purchase goes as smoothly as possible, here are six very high-level steps you should follow. While it might seem like the best place to start the home buying process is to browse MLS on your phone and then contact a Realtor to go out and look at properties, it’s not. First, you’re going to want to work with a licensed independent mortgage professional. When you work with an independent mortgage professional, instead of working with a single bank, you’ll be working with someone who has your best interest in mind and can present you with mortgage options from several financial institutions. The second step in the home buying process is to put together a mortgage plan. Unless you have enough money in the bank to buy a home with cash, you’re going to need a mortgage. And as mortgage financing can be challenging and not so straightforward, the best time to start planning for a mortgage is right now. Don’t make another move until you discuss your financial situation with an independent mortgage professional. It’s never too early to start planning. As part of your mortgage plan, you’ll want to figure out what you can afford on paper, assess your credit score, run some financial scenarios, calculate mortgage payments, and have a clear picture of exactly how much money is required for a downpayment and closing costs. You’ll also be able to discuss which mortgage product is best for you, considering different mortgage terms, types, amortizations, and features. Now, what you qualify to borrow on paper doesn’t necessarily mean you can actually afford the payments in real life. You need to consider your lifestyle and what you spend your money on. Understanding your cash flow is the key. Make a budget to verify you can actually afford your proposed mortgage payments and that you have enough funds to close on the mortgage. No one wants to be house-poor or left scrambling to come up with funds to close at the last minute. If everything looks good at this point, the next step will be to get a preapproval in place. Now, a pre-approval is more than just typing some numbers into a form or online calculator; you need to complete a mortgage application and submit all the documents requested by your mortgage professional. Only proceed with looking at properties when you’ve been given the green light from your mortgage professional. When you’ve found a property to purchase, you’ll work very closely with your mortgage professional to arrange mortgage financing in a short period of time. This is where being prepared pays off. As you’ve already collected and submitted many documents upfront during the preapproval process, you should be set up for success. However, remain flexible and provide any additional documentation required by the lender to secure mortgage financing. Once you have firm lender approval and you’ve removed conditions on the purchase agreement, don’t change anything about your financial situation until you have the keys. Don’t quit your job, don’t take out a new loan, or don’t make a large withdrawal from your bank account. Put your life into a holding pattern until you take possession of your new home. So there you have it, six steps to ensuring a smooth home purchase: Work with an independent mortgage professional. Put together a mortgage plan. Figure out what you can actually afford. Get a pre-approval. Provide the necessary documentation. Don’t change anything about your financial situation until you take possession. If you’d like to discuss your personal financial situation and find the best mortgage product for you, let’s work together. We can figure out a plan to buy a home as stress-free as possible. Please connect anytime; it would be a pleasure to work with you.
LET'S TALK
MARCI DEANE
MORTGAGE BROKER
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The first step is to start a conversation with me.
