Efficiency key in managing debt

Consolidation of debt is a good way to go, but be careful

Debt has become a popular topic of late. In fact I have written about it in this column. Personal debt has risen to record levels in recent years. Our government is worried and has repeatedly issued warnings.

To be fair, there are many in the financial community who believe that the government is overestimating the potential problem — pointing out that interest rates are low and are expected to stay low. They argue that Canadians are able to service a higher level of debt.

While this argument may seem self-serving, it does have some merit. That being said, it is difficult to make a credible case that Canadians shouldn’t be focusing on debt reduction. In fact in a recent survey, Canadians have placed debt reduction as their number one financial priority.

Typically when seeking advice on how to deal with debt, consolidation is offered up as a solution. This can often be a good idea, but beware. Avoid being enticed into increasing your debt in the process. Contrary to what we are sometimes told, most of us are not richer than we think.

A better idea would be to develop a strategic debt management plan, with the goal being to reduce debt gradually over time. For most there is no quick fix — eliminating debt (hopefully by retirement age) will take time. It is important to be patient. It is important to look at any possible strategy to manage debt more efficiently.

One such approach that I often recommend involves more than debt consolidation. It involves consolidation on a larger scale, by integrating your bank account with your debt.

To do this you need to deal with a financial institution that will allow you to combine your mortgage with your bank account. Most Canadian banks will not, but there are some who will. The benefit to this approach is to ensure that your debt level (on which you pay interest) is always as low as it can possibly be — with cash in your bank account always being applied to your debt before interest is charged. This is not the typical way for Canadians to conduct banking, and takes some getting used to. But it is an approach that is working for many.

Of course this is not the end of it. Saving for the future is important as well. But it is a starting point on which a really good financial plan can be built.

If this topic is of interest please call or e-mail to pre-register for our upcoming presentation. Date and location to be determined.



Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). This article is for information only.  Securities are offered through Raymond James Ltd., member Canadian Investor Protection Fund. Insurance and estate planning offered through Raymond James Financial Planning Ltd., not member Canadian Investor Protection Fund.  For more information feel free to call Jim at (250) 594-1100, or email at  jim.grant@raymondjames.ca. and/or visit



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