Not all debt is created equally. Let’s face it, debt is not something we desire to have but there is a difference between the good and bad and it lies in how it can hurt or help you reach your financial goals.
Some debt can be seen as an investment in one’s future such as:
- borrowing to maximize your RSP contributions
- loans with tax-deductible interest to ear investment income
- borrowing to acquire an asset that may increase in value, such as your home or a rental property
- student loans that enable you to get an education leading to a great career with an equally great income
However, other types of debt can act as a fiscal drag limiting your future opportunities such as:
- revolving consumer debt with high rates of interest, i.e. maintaining balances on credit cards or department store cards
- buying something that will depreciate in value using borrowed funds
- cash advances on your credit cards
- making deferred consumer purchases, i.e. where the cost of the item includes financing charges
Any Canadian that is carrying unsecured debt – or for the most case, the bad debt should consider refinancing their mortgage to capitalize on the lower interest and subsequent lower interest costs.
Kim Gibbons Your “Mortgage Superhero ®”