October 06, 2022 | By: Josie D'Addario

How to Manage Your Rent and Debt Payments

Debt Management | Rent Payments

We’ve heard the age-old wisdom about rent as 30% of our income. And if you live in a Canadian metropolitan city like Toronto or Vancouver, you might have scoffed at that. Rents are going up, with Canadian rentals jumping almost 18% in the last year.

But rent prices aren’t the only thing overpowering that 30% of your income. Canadians carry an average of $21,000 in debt, excluding mortgages. We’re talking scary-high interest credit cards, but even credit lines have rising interest rates these days. And for many, high rents impact their ability to pay down debt.

So, how do you manage both?

Let’s look at some ways to manage high rents and debt payments. But before we do that, let’s talk about rent versus mortgages.

Rent versus Mortgages

If you’re spending over $2,000 a month on rent, you’ve probably heard the anecdote: 

That’s almost a mortgage payment!

To which you’d reply, thanks, Sherlock. Of course, high down payments and strict lending requirements stop many from switching from rent to mortgage. 

But that doesn’t mean you shouldn’t consider it. You can purchase a home with a 5% down payment, not 20 — but you’d have to pay for mortgage insurance. Plus, down payment assistance from the government and private organizations like Lotly seem to evolve every year, helping homeownership become a reality for Canadians. 

Pssst. Our credit counsellors can help you map out a plan to become mortgage-ready, just book a consultation with us. 

Of course, this isn’t the right move for everyone. 

Credit Canada’s CEO Bruce Sellery admits that a mortgage isn’t always the way to go for renters. He advises one reader that the stigma around renting is stronger here than in places like Hong Kong and Germany — it could make more sense for some Canadians than a mortgage, depending on their financial scenario.

5 Tips on How to Manage Rent and Debt Payments

Full disclosure: you might not be able to work with every single option in this article. But small changes can add up to a big difference. Even if you adopt one of these tips, you’ll experience some relief. 

Let’s get started.

1. Downsize

The thought of moving can feel unsettling for some. But if your apartment or home eats up a large chunk of your income, is there room to downsize? 

Let’s say you make $45,000 a year, and take home $3,750 a month before taxes. If you live alone, you might spend close to $2,000 on a 1-bedroom apartment — a whopping 53% of your income. Tack on your monthly credit card payments at a minimum, plus any utilities, transportation, and other expenses…

And you aren’t saving anything. The worst part? 

Your rent might take up so much income that you neglect your debt payments, costing you even more in interest and exacerbating debt

What if you moved into a studio apartment instead? Even if you brought that rent down to $1,650/month, that’s $350 that can go to: 

  • Regular, on-time debt payments to avoid interest
  • Emergency fund savings
  • Investments

But if you can’t fathom a studio? You’ll have to find savings elsewhere.

2. Find a Roommate

It’s not always comfortable sleeping in your living room space. Studios aren’t for everyone, but you might find similar savings if you find a roommate. 

Say you leave your 1-bedroom apartment and find a two-bedroom apartment for $2,500. Yikes. That’s still a pretty penny, but sharing it with someone else offers two benefits: 

  • You’re paying $750 less than before in rent. 
  • You still keep your bedroom and living separate. 

Similar arrangements work for families, too. Say you rent a three-bedroom home with your spouse and child. That extra room or office space can host an international student for a few months, or longer if you’d like. Or, you could try your hand at short-term rentals with Airbnb, if your landlord allows it. 

Of course, roommates aren’t always feasible. Maybe you value more privacy with your family. Or, you just don’t feel comfortable sharing space with a stranger. In that case, downsizing to a studio could offer relief. 

But so can changing cities.

3. Move to a Different City

We realize this isn’t an option for everyone — but people do it. One reporter talks to a few Hamilton residents that commute 1.5 hours a day to their Toronto jobs. Similarly, Edmonton workers commute from towns like Westerra, Silverstone, and South Creek. 

Of course, you’ll have to factor in commuting costs like gas or public transportation, like the GO Train. But if you’re working from home, your options widen significantly. Tons of Canadians moved across the country to lower-cost provinces, from Ontario to New Brunswick, for example. 

Pro tip: Enlist a real estate agent’s support to help you find an apartment. They’ll do all the scouting for you and help you find units that match your budget. Plus, it’s free!

4. Take a Hard Look at Your Budget

If you can’t find savings in your rental, something has to change in your spending. It’s time to take a closer look at your budget. Don’t have one? It’s time to change that. Don’t worry; plenty of our clients are new to budgeting, and our credit counsellors walk them through creating one. 

But having a solid idea about where your money is going can help you trim the fat. And reduce stress, according to the Government of Canada.

Get started with our monthly budget template!

5. Seek Support

You’re not alone in dealing with high rents and debts. But debt issues have this way of making us feel ashamed and isolated. Asking for help breaks you out of that isolation. 

Credit Canada has advised over 2 million Canadians about debt relief options — we’ve seen it all, from grads struggling with student debt to those struggling with surprise, life-altering events that hurt their budget. Sometimes, one sit-down with a credit counsellor is enough to change your outlook and remind you that you can get through it. 

The best part? We’re a non-profit agency, and we mean that — our services are 100% free of charge. Let’s help you overcome your debts. Book a consultation today!

 

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