Debt doesn’t have to be a four-letter word. Well, it is but it doesn’t have to be a bad thing. It all depends on what kind of debt you have. There are two types of debt: Good and Bad, and if you’ve ever tried to get a loan, these debts are analyzed before a lending decision is made. Now this may seem crazy, but there are debts you should incur, but manage.

Good Debt is defined as an investment that will grow in value. Buying a house, for example, is a prime example of Good Debt. Almost no one plans on paying for their first house with strictly cash; you have to go into debt with a mortgage and pay that mortgage off. This investment, however, will appreciate in value and cancel out any interest you’ve paid over the period of time that you’re paying off that investment.

Student loans are another example of Good Debt. These typically have a low interest rate. Plus, a post-secondary education increases your value as an employee and raises your potential future income. It’s an investment just like a home, but it’s an investment in yourself as opposed to property.

An auto loan can even be considered Good Debt if it’s essential to a business that you may be running. However, unlike a home, cars and trucks lose value overtime, so it’s in your best interest to pay as much as possible up front and avoid high-interest monthly payments.

Bad Debt, on the other hand, is debt that you incur to purchase things that quickly lose their value and will not generate long-term income. These often carry a high interest rate as well, such as credit cards. In these cases, don’t buy it if you don’t need it. A $175-dollar pair of shoes can cost you $250 if you don’t pay off that credit card for years.

Payday loans or cash advance loans are the absolute worst kinds of Bad Debt you can get involved in. Between fees and the excessively high interest rates, you can quickly get underwater with the Quick Cash type of companies. This isn’t news to anyone, but ensuring you don’t have any of that hanging over your head is the best way to avoid Bad Debt getting out of hand.

Everyone at one point or another gets a reality check that makes it clear that you’ve been a bit too free and careless with your finances …and it’s time to make a change. Debt is not necessarily a bad thing, but you want good debt, not bad. If that sounds familiar and you’re looking for a way to be a bit more responsible with your finances, here are 6 steps that can get you out of bad debt and into good debt:

1. Make Minimum Payments and Save Up a Small Emergency Fund – This can be anywhere from $500 to $100 dollars, whatever makes sense to you so you can feel a bit more secure financially in case any small, unexpected expenses come up. It’s amazing how this little bit of savings can keep you from using your credit card for dental emergencies or a blown-out tire.
2. Find a Side Hustle – This can be anything that will make you a bit of extra money on the side that you are able to put towards your debt. Start a Zumba class, sell crocheted blankets on Etsy, get a part time job at Starbucks…anything that can get you a bit of extra revenue.
3. Debt Snowball – This is a pretty popular way to get out of debt and you probably have heard about it before…but if not, here’s a quick synopsis: Rank your debts from lowest to highest, make minimum payments on all of them, but use that extra money from your side hustle to pay off extra on the lowest amount. Once that debt is paid off, take the amount you were using to pay off the lowest amount of debt, including the minimum payment and put it towards the next lowest amount. It’s amazing how quickly you can get rid of a puzzle of credit cards and small loans.
4. Save Up a Larger Emergency Fund – Once you have paid off all your bad debt (credit cards, high interest loans etc.) using the snowball method, save up a more significant emergency fund. You can do it, too! Look at all the income you just freed up! Give yourself an even larger cushion and leave it for a rainy day.
5. Keep Your Credit Cards – I know this may seem counter intuitive, but don’t cut up those cards. Keep using them and use them responsibly. This will build up your credit history and allow you to succeed in any future investments.
6. Get into Good Debt – ‘Good Debt’ may seem like an oxymoron, but it can be one of the largest steps towards long-term financial freedom. Good debt is defined as an investment that will grow in value or generate long-term income. Things like student loans are considered good debt because an education increases your value as an employee and raises your potential for income. Mortgage payments are considered good debt because in most cases the house will appreciate in value. Use this newfound financial freedom to get into Good Debt. Buy a rental property or real estate, or take some online classes to upgrade your education. Take the money and invest in YOU.

Canada Mortgage and Housing Corp. is making changes intended to make it easier for the self-employed to qualify for a mortgage.

The national housing agency says it’s giving lenders more guidance and flexibility to help self-employed borrowers.

Self-employed Canadians may have a harder time qualifying for a mortgage as their incomes may vary or be less predictable.

CMHC is providing examples of factors that can be used to support the lender’s decision to lend to borrowers who have been operating their business for less than 24 months, or in the same line of work for less than 24 months.

It is also providing a broader range of documentation options to increase flexibility for satisfying income and employment requirements.

The changes, which apply to both transactional and portfolio insurance, will take effect Oct. 1.

CMHC chief commercial officer Romy Bowers said self-employed Canadians represent a significant part of the workforce.

“These policy changes respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates,” Bowers said in as statement.

The Canadian Press

Yesterday, the Bank of Canada (BoC) hiked the overnight rate 25 basis points to 1.50 per cent, the fourth increase in the last 12 months.

In its release, the Bank noted that the housing market seemed to be stabilizing, and would be able to weather the hike. Some economists agreed with the sentiment, while others argued that there is still cause for concern.

“Of course, beyond the fundamentals, the current economic environment is hardly normal,” writes TD senior economist Brian DePratto, in a note discussing the hike. “Underlying risks related to housing markets and household debt already argue for caution in the pace of hikes.”

Meanwhile, Scotiabank VP and head of Capital Markets Economics Derek Holt wrote that the housing market does seem to be where the BoC wants it — at least for now.

“On housing, the BoC says ‘Recent data suggest housing markets are beginning to stabilize following a weak start to 2018,’” he writes, in a recent note. “When asked in the press conference if this is viewed as positive — presumably in the context of the BoC’s prior stability concerns — the Governor said ‘yes.’ That is not new per se…but it reinforces the point.”

But how will the rate hike affect homeowners, or would-be buyers? According to Zoocasa managing editor Penelope Graham, there are a number of ways the news could affect Canadians’ decisions, and wallets, in the coming months.

“Anytime a rate hike happens, it has a material effect on affordability,” Graham tells Livabl. “Mortgage rates are going to get more expensive, and that’s going to have an impact on homeowners.”

It could also affect when buyers decide to enter the market. According to Graham, some may choose to buy sooner rather than later, wary of another rate hike on the horizon.

“People may ask themselves, ‘Should I get into the market now, because it’s only going to become more expensive in the future,’” she says. “It’s a buyer mentality where they’re aware that more rate hikes are likely coming.”

If there’s one thing economists can agree on, it’s that more hikes are certainly on the way, with most predicting another hike in October. Yet DePratto is quick to mention that a fluctuating housing market and trade tensions with the US means nothing is for certain.

“Despite today’s hike only bringing the policy rate to about half of its ‘neutral’ level, the path forward, particularly in terms of the pace, remains cloudy and the Governor continues to emphasize that monetary policy needs to be done in real time,” he writes.

A major Canadian housing price index rose for the third consecutive month in June, as the demand for condos continues to rise.

The Teranet-National Bank Composite National Price Index jumped 0.9 per cent month-over-month in June, following a 1 per cent rise in May.

“Condo prices have risen at a fast clip since the beginning of the year in Toronto and Vancouver (after seasonal adjustment, 7.8 per cent and 16.3 per cent annualized respectively), while prices for other types of dwellings held their ground,” writes National Bank senior economist Marc Pinsonneault, in a recent note.

But according to Pinsonneault, June’s rise doesn’t mean that Canadian home prices are about to warm up in a big way. Instead, it’s just a sign that things have leveled out after January’s serious correction.

“Does this mean that the Canadian home resale market is about to enter into a new frenzy? No,” he writes. “June’s rise in the index, impressive at first sight, was in fact weak for this time of the year. Indeed, if the Index were purged from seasonal patterns, it would have been about flat over the last three months.”

But, although the index merely stabilized last month, it’s still good news. While condo prices continued moving upwards, low rise prices are now relatively flat.

“The resiliency of prices for [low rise homes] is indeed reassuring in view of higher interest rates and stricter mortgage qualification rules that dampen demand for the most expensive categories of dwellings,” writes Pinsonneault.