For starters – check out what Rob Carrick has to say from the Globe & Mail about this.
Just because the banks are extending you credit it does not mean you qualify for it.
It would be hard to miss the CBC exposure of the Bank employees complaints of pressure on them to pressure sell to clients. I even had one teller at my bank shut down her till and walk with me out to the ATM machine as she was pitching me how to use their branch to do do even more investments.
I actually had never seen her before and was suspicious that she was there to show the other tellers (sales people) just how the high pressure tactics work.
We do advise to check your accounts at least once a year and see if there are crazy insurance charges on your visas / master cards, loans and lines of credit. Check what your interest rates are.
We advise our clients who pay out their credit cards monthly to get a travel points card and have the account rep tell you all your options. Also those who do not pay out a card monthly not to go near points cards as you will never get on that trip because the bank is charging you a whopping 19.99% on the card balance so you will be doing overtime while the CEOs are building their monster cottages.
Remember also that until the Government legislates that all credit outside your mortgage has to meet a maximum TDS ratio (Total Debt Service of your income) You have to do that calculation yourself. It is easy,
So if you are adding a monthly payment on a debt like a loan it would go like this:
Monthly Mortgage Payment + Property Tax + ( half condo fee) + Line of Credit payment + car loan + whatever else
DIVIDED BY
Your total monthly income before tax.
If your are nearing 40% of your total income you are in the RED ZONE in our books. Pay out any cards immediately even if you have to pull savings (not RRSPs). Or move them onto a cheaper Line of Credit and start attacking that until cleared. Then see if you can put a reasonable car payment on to your TDS
Playing it safe pays off for you – not the banks.
