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Personal finance is often plagued with conditional “it depends” and “on one hand” advice that feeds confusion. So let’s try something simple and direct for 2023 and call it the year of paying down debt. With mortgage and home equity line of credit rates between 5 and 6 per cent, you can be confident that the best use of your money is to reduce the amount you owe.

Need something more to motivate you to cut debt? Let’s try this – a quick test to see how your mortgage, credit card, credit line and car loan debts compare to average levels. The urgency level for paying down debt depends as much on your financial means as the amount you owe. But comparing your own borrowing to average levels at least gives you a point of comparison to see how you’re doing.

Here are average balances owing for the third quarter from the credit reporting company TransUnion:

  • Credit cards: $3,913
  • Auto loans: $26,082
  • Lines of credit: $34,968 (home equity and unsecured combined)
  • Mortgages: $343,612 (recent and long-time homeowners combined)

The average debt numbers tell a story of moderation more than overspending. Credit card debt was up 9.4 per cent from a year earlier, but still down 6 per cent from the pre-pandemic days of 2019. Credit line debt was up 4.6 per cent in the past year, but remained 1.7 per cent below 2019. Auto loans were up 3.5 per cent from last year and up 7.4 per cent from 2019, but everyone knows that car prices have soared. The average mortgage balance per consumer was up 9.3 per cent on a year-over-year basis and up 25.6 per cent from 2019.

Including the rate hike announced earlier this week, the Bank of Canada has increased borrowing costs seven times since March. If you’re just managing to pay what you owe, forget about reducing the amount of your debt and focus on getting by until rates start declining.

But if you have the resources, paying down debt is a “results guaranteed” way to put your money to work in 2023. Pay off credit cards first because of the high rates (around 20 per cent) and then look at loans, lines of credit and mortgages. Reducing a mortgage balance before renewal helps offset the impact of higher rates.

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Rob’s personal finance reading list

Is the CAA worth the cost?

I say yes. I’ve had them replace a battery while I was stuck in a parking lot, change tires and tow cars a bunch of times. Also, the CAA card has got us discounts on hotels and parking at the airport in Ottawa, where we live. Now for an analysis by a personal finance blogger who outlines some alternatives.

Speaking of cars …

Here’s a look at how auto insurance costs might be affected by some of the big automotive trends of 2022, including the popularity of electric vehicles.

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A blogger who focuses on dividend investing lists five stocks he bought this year. Not all have worked out.

Ask Rob

Q: I’ll be retiring in a year or two and wonder if you could do a story on annuities? With interest rates getting higher, is it getting time to buy soon?

A: Here’s my latest article on annuities, which was published during the summer. At that time, annuities payouts were up about 15 per cent on a year over year basis. Let me know if you’d like an update on annuity payouts.

Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.

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The Money-Free Zone

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Scott Barlow, the Globe and Mail’s in-house financial market strategist.

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