Tackling Personal Debt in 2019
It’s a simple yet powerful four-letter word—debt. Unfortunately, many Canadians have an unhealthy relationship with debt either hiding it from their spouses or just avoiding it altogether. But, getting out of debt while living life comfortably can be surprisingly simple! We have collected our best tips to reduce your current debt.
How Much Personal Debt is Too Much?
Lines of credit and credit cards are tools that many Canadians use to buy groceries or purchase a vehicle. Using these tools are very beneficial to build your credit and help with securing larger loans, like a mortgage, in the future. According to a recent poll by Ipsos, Canadians own an average of $19,977 of non-mortgage debt. Managing debt comes down to simple budgeting; are you able to pay off all or most of the balances each month or are you only able pay the minimum payments?
If you’re struggling to make the minimum payments, it’s time to stop and review what is going on in your monthly spending.
Saving While Paying Down Debt
Can you actually save money and get out of debt at the same time? Of course! And setting money aside each month while you’re also making loan payments can relieve a lot of financial stress about planning for the future.
Start with your monthly take-home income. A great piece of advice from David Chilton in his book, The Wealthy Barber, is to take 10 per cent of that amount and dedicate it towards your RRSP, TFSA, or other savings account. Make these contributions automatic by deducting it off your pay cheque or scheduling payments, and it will become part of your monthly budgeting.
Determine your Interest Rates
As your debt amount increases, a significant portion of your payments will go towards paying the interest and not towards the principal. As an example, many credit cards carry a 19.99 per cent interest rate or higher compared to alternative loan options, such as an unsecured loan or home equity line of credit which can carry a single digit interest rate.
Making more than the minimum payment on loans with higher interest rates first can help you save money in the long-term. Credit Canada provides a great tool to help determine how long it would take you to pay off your debt by only making the minimum payment. It can be a financial wake-up call when the numbers appear!
Consider a Debt Consolidation Loan
If you’re still struggling to make your monthly payments on your outstanding debt, it’s time to talk to an expert about debt consolidation. Debt consolidation can be a great way to bring all your outstanding debt into one monthly payment.