By Jasmin Brown - Licensed Insolvency Trustee

BDO First Call Debt Solution

How to Know if You Are House Poor And What You Can Do About It

Apr 29, 2019 | 2:30 PM

Buying your first home is a major milestone and can be a real source of pride. But when you find yourself unable to make ends meet, homeownership can quickly become stressful.

Life-changing events like divorce, job loss or illness can put a serious strain on your finances and increase debt significantly. Suddenly, your monthly mortgage payment is no longer affordable, leading you to be “house poor”. If this sounds like you, here are a few strategies that may help you take back control of your finances.

The situation of being “house poor” simply means spending too much of your income on home ownership. The general rule is to allocate about 30 per cent of your income to housing costs, which include your mortgage payment, taxes, utilities and maintenance. When your mortgage payment is too expensive, you can find yourself unable to afford basic essentials (like food, transportation, clothing and prescription drugs) and unable to save for the future.

Being house poor puts your financial well-being at risk, so it is important to be aware of the risks and have a plan. If you are having trouble keeping up with everyday expenses and debt payments, here are a few steps you can take to get control of your finances again:

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· Tally up your debts. It can be tempting to put off dealing with that growing pile of unopened bills or credit card statements. Don’t do it. Chances are very good that the stress or fear you are feeling will only get worse the longer you ignore your debt. Confront the reality of your situation by taking stock of what you owe. Create a spreadsheet or simple list of your outstanding debts, and make sure you understand the terms of each debt along with any interest or penalties that you owe.

· Review and revise your budget. In order to reduce debt, you need to know how dollars flow in and out of your bank account. Make a list of all of your expenses for each month. You will soon know whether or not you are truly house poor, or if you just need to change your spending habits.

· Cut your expenses. When you use a budget, you quickly know where (or if) you can cut back. Trimming your expenses even a little bit can make a big difference in your ability to make ends meet.

· Look for opportunities to increase your income. Not everyone is able to generate more income, but if you have the time and opportunity to freelance or take on a second job, it can help de-stress your finances. You might also consider sharing your home to decrease your debt load.

· Consider next steps. Even after you have done everything you possibly can, it still might not be enough. Consider other options like downsizing, relocating to a less expensive location or opting to rent instead of own. You can also speak with a Licensed Insolvency Trustee to explore solutions that will help eliminate your debt and increase your financial security.

Ultimately, your home should be a source of pride and joy, but this isn’t easy when you’re struggling financially. Take some of the steps we have discussed in this post in order to take back financial control so that you can make the best decisions for your future.