BMO Bank of Montreal

BMO Bank of Montreal

July 26, 2011 13:54 ET

BMO Offers Tips On How To Avoid Hitting Your Personal Debt Ceiling

- More than one quarter of Canadians living paycheque to paycheque

TORONTO, ONTARIO--(Marketwire - July 26, 2011) - The August 2nd deadline is looming for the United States to come up with an agreement for raising the $14.3-trillion debt ceiling. The outcome has wide ranging consequences with the potential to have a significant impact on the global economy and stock markets.

While putting its financial house in order is a top priority for administrations, it should also be top of mind for consumers and their financial affairs.

Case in point – a BMO survey reveals that one in three Canadians are living at or beyond their means, with 27 per cent living paycheque to paycheque – a 10 per cent increase over last year.

BMO Bank of Montreal offers the top 5 tips to avoid hitting your personal debt ceiling:

  • Don't overspend – Spend less than you make. Develop a budget that establishes how household expenses will be paid and how spending will be managed. Take advantage of free online tools, such as BMO MoneyLogic™, to help stay on top of everyday household spending and saving.
  • Curb credit card debt – Pay down credit cards, beginning with those that carry the highest rate, and consider using a low rate card for purchases. For instance, the BMO Preferred Rate MasterCard offers a low rate of 11.9 per cent for an annual fee of $20 per year.
  • Invest to save – Set up a Tax Free Savings Account (TFSA) or high interest savings account to set aside extra cash in case of an emergency. Also consider using Exchange Traded Funds to reduce management expense fees.
  • Become mortgage free faster – Cutting your amortization from 30 to 25 years and increasing monthly payments on mortgages can help you pay down your mortgage faster while saving you thousands of dollars in interest costs. For instance, BMO offers a low 5 year-fixed rate mortgage with a maximum 25-year amortization at 3.79 per cent. Additionally, consider increasing the frequency of your payments and/or making lump sum payments to pay down your mortgage faster. For example, by making a lump sum payment of 5 per cent of the original principal each year, you can pay off a 25 year mortgage in less than 12 years and save over $136,000 in interest.
  • Have a Plan B – Plan ahead and develop a fall back plan in case you are unable to meet your financial obligations due to unexpected circumstances, such as loss of work, or damage to personal property, including your home or vehicle.

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