Archive for April, 2012

Articles

CASH FLOW: Commentary on the Debt Challenge

In Financial Planning on April 4, 2012 by letusbenefityou.com

Could an All-in-One account could be the solution?

Attitudes and behaviour concerning debt differ by age.  Regardless of whether clients are in their 30s, 40s or 50s, many can feel they’re fighting an uphill battle.  Below are some researched findings and results from a Canadian Bank survey.

30-SOMETHINGS

Clients in their 30s may be managing old debts, such as student loans, while acquiring new debts as they buy homes, start families and see their expenses rise.

A survey found Canadians aged 30 to 39 have the largest average outstanding debt balance ($209,200) and the largest average number of debt products (3.8 different debts).*

In the hustle of life some people neglect to realize how much credit card debt and other forms of financing really cost.  Seeing 18 or 19 per cent credit card or line of credit interest on a statement doesn’t impact everyone in the same manner (ie. how many years would it take to repay that balance just by making the minimum payment?).  Consolidating debt with a lower interest rate in an all-in-one account could make sense.  Unifying gives focus to debt repayment because it’s tough to effectively manage seven or eight accounts.

WATCH VIDEO:  To see an introduction of how an all-in-one account can save you money

40-SOMETHINGS

Many clients in their 40s may have experienced a financial bump in the road, whether through job loss, divorce, illness or a death in the family.  Debt repayment may have stalled and they may feel trapped in a never ending cycle of bills.

Survey findings showed Canadians aged 40 to 49 owe an average of $157,600.  And they’re carrying these balances across, on average, 3.1 different debts.*

One of the biggest challenges to people in their 40s is the cost of raising a family, including saving for post-secondary education and retirement.  The key is to not over-extend yourself.  Make it a habit to be putting away at least 5 to 10 per cent of your income.  With the use of a product like Manulife One I’ve seen clients free up capital that would otherwise go to support debt at 18 or 19 per cent.  Once they make that adjustment it allows them to free up cash for other things – paying debt down quicker, putting away money in an RRSP or TFSA, or starting an insurance program.

50-SOMETHINGS

Clients in their 50s are likely more in touch with the meaning of cash than younger generations who grew up on plastic debit and credit plans.  Nevertheless, many are still struggling with significant outstanding balances – and their monthly debt obligations may mean they don’t have the flexibility to retire when or how they want.

Canadians aged 50 to 59 owe an average of $108,500, with the largest number managing less than $50,000 in debt.  That said, one in four are still burdened with between $100,000 and $250,000 in debt.*

Some clients in their 50s are house rich and asset poor.  By downsizing early they can save in interest, property taxes, stress and upkeep, pay down debt and put money away for retirement.  It makes sense to have your home equity work for you.  With reduced debt, lower mortgage payments and education accounted for these clients can focus on topping up RSPs.  A Manulife One account can be incredibly useful for this group.  They can borrow money to contribute to an RSP and take advantage of the opportunity to reduce taxable income, accumulate money for retirement and apply any potential refunds to pay down the borrowed money inside their all-in-one account.

TO LEARN MORE about how an all-in-one account could benefit you visit my website and feel free to contact me.

*According to data gathered from the 2011 Consumer Debt Survey.  Surveyed 1,000 homeowners between the ages of 30 and 59 with household income of more than $50,000.