Inflation’s rising, so pay down debt now | Globe & Mail; Carrick
Rob Carrick over at the Globe & Mail pulls together a clear consumer piece on the coming convergence of inflation, rising interest rates, and holding too much consumer debt.
reportonbusiness.com: Inflation’s rising, so pay down debt now
The most important financial move you can make in the next six months is to get your debts under control.
Pay off your credit cards, pay down your line of credit, and if you’re buying a home, don’t max out on your mortgage payments. Tough times are coming and the people who get through them in the best shape will be the ones who aren’t siphoning a lot of their household income to pay off debt.
His article brings together comments from industry analysts who are looking out to 2009/2010, and he notes their analysis which looks at the financial moves made by governments and consumers today, and predicts what impact that will have as the lag effect comes in to play.
Things he suggests to watch for are higher inflation of 3 – 4 % by 2009/10 (predicted by CIBC World Markets) rising interest rates – no prediction here, but will risk apparently as a result of higher interest rates.
Carrick continues:
There are warnings of financial stress to come, though. Interest paid on mortgages and other forms of consumer debt has been soaking up an increasing proportion of household cash flow. Until recently, this didn’t seem to be much of a problem because personal wealth was rising faster than debt. But with falling stock markets and a slower pace of growth in home prices, debt has been growing faster than the value of household assets.
He finishes off the piece with recognition that some debt is unavoidable, and that the trick is to keep it manageable. He offers some guidelines, based on discussions with some lenders, and throws in the thought of using that income tax refund (tomorrow is the deadline) for paying down debt.
Lenders figure you’re carrying too much debt if your monthly housing costs, including mortgage payments, property taxes and heating, plus all your other monthly debt payments eat up more than 40 per cent of your gross monthly income. Housing costs alone are supposed to account for no more than 32 per cent of your gross monthly income
