How to borrow smartly

The top three credit options used by Canadians within the past five years are bank-issued credit cards (92%), department store cards (48%) and mortgages (42%), finds TD.

But there’s a difference between good and bad debt.

Read: Q1 consumer spending up 3.31%

“Borrowing money to invest in something that will increase in value, like a home, could be considered good debt,” says Farhaneh Haque, director of mortgage advice at TD. “In contrast, carrying a balance on your credit card to fund short-term lifestyle spending should be paid off immediately.”

Here’s how to help clients borrow smartly.

Credit Cards

Credit cards are the most widely used personal credit product. More Canadians applied for a credit card in the past year (29%) than any other personal credit product, finds TD. Two-thirds agree setting up pre-authorized bill payments on a travel rewards credit card is a good way to maximize the travel rewards earned and manage finances.

Read: Revamp client portfolios for 2013 “No matter which credit card you have, ensure you pay your credit card bills in full and on time each month to avoid interest charges on your purchases,” says Stephen Menon, associate vice president of credit cards at TD.

Home Equity Line of Credit

Seven in ten Canadians have never used a home equity line of credit, even though 82% correctly believe it can be a lower-cost option than a personal loan for financing a home renovation.

Read: Get the most out of tax returns “A Home Equity Line of Credit could allow you to use up to 65% of the lesser of the appraised value or purchase price of your home, with a lower interest rate than most alternative forms of unsecured credit,” says Haque.

Mortgages

The majority of Canadians think a mortgage is good debt and understand that weekly mortgage payments, versus monthly, will help reduce the mortgage amortization period.

Read: Should clients rent or buy? “If you have paid down your mortgage ahead of schedule you may be able to use that prepaid amount to take a temporary vacation from your scheduled payments,” says Haque. “A payment vacation can be useful if you’re starting a new family or find yourself temporarily unemployed.”

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