Valley First

Tackling Debt

Valley First expert shares simple tips on how to prioritize your payment
July 2, 2014

Penticton, B.C.—News of the ongoing mortgage wars and lowering interest rates from financial institutions are dominating the headlines these days and while this may favour the consumer, it also presents a fitting time for many to reconsider how they are prioritizing their debt repayments. With credit card debt weighing down a significant portion of Canadians, does it make the most sense to continue paying down your mortgage when rates are so low, or should the priority be on credit card debt reduction?

According to Shawna McCrea, branch manager at Valley First’s Rutland branch, that all depends on the individual, as well as the type of debt, amount of debt and interest rate you are paying. “For me, the number one priority was to pay off any debt I owed, however that’s not always the case for every individual. It really depends on what’s important to you, what your dreams are and then having a solid laid out plan in place to get you there.”

McCrea continues, “Generally, I would say that paying off your highest interest rate debt should be a priority. Once you pay for all of your necessities with your pay cheque such as your mortgage, loan payments, credit card payments, taxes, gas, electricity and food, divide the remainder into three parts – a third extra payments on debts, a third in to investments and a third on splurges or little extravagances like specialty coffees, shopping or travel. It doesn’t have to be all or nothing.” McCrea says there are some more simple ways that people can also maximize their savings and expedite their debt repayments.

Rethinking retirement

“Sometimes all you need is a wake up call,” says McCrea. “People should know that their pension will likely not see them through their entire retirement so the earlier you start saving, the better. Not only because you’ll have more time to save during your working years, but also because the compounding interest will work in your favour.”

Getting to the root of the problem

McCrea suggests that if you have a lot of credit card debt, a consolidation loan may be right for you but only with the right mindset. “A consolidation loan will help in decreasing the amount of interest you’re paying, however the key to successfully paying off your debt is really addressing the root of the problem, which is the spending. If you’re repeatedly finding yourself in a financial hole, you might want to really think about how you’re planning on paying off that debt in the short-term. Often times, if people wait even 24 hours before making an impulse buy, they’ll find they’ll have changed their minds or decide they really didn’t need it in the first place.”

A little bit goes a long way

“With the low-interest rate environment we’re dealing with these days, people really have a great opportunity to make a significant dent in their mortgage,” says McCrea. “The difference between a 20, 25 or 30 year mortgage amortization is potentially tens of thousands of dollars and the old saying of paying yourself first still rings true. While you definitely want to pay off your highest interest debt first, making extra payments on your mortgage can go a long way in helping you cut down on the principle. Even one extra payment a year can cut down on your amortization significantly, so think twice about how you use those ‘win-falls’ like your work bonus or tax refunds.”

McCrea concludes that it’s really about making good use of every dollar you earn. “People need to be responsible with their finances and how they use credit. They need to consider if they really need the best of everything, or if they need everything all at once. Instead of constantly trying to keep up with your friends or neighbours with their purchases, consider sitting down with a financial advisor to get a full financial plan in place that meets your needs and works for you.”

About Valley First

Valley First is a division of First West Credit Union, B.C.'s third-largest credit union, with 38 branches and 29 insurance offices throughout the province operating under the Valley First, Envision Financial and Enderby & District Financial brands. Led by Launi Skinner, First West has $7.7 billion in assets under administration, more than 177,000 members and close to 1,300 employees.

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