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Debt. It’s kind of a scary word, isn’t it? Indeed, we often see many articles out there talking about Canada’s debt crisis, or increasing levels of household debt, and people taking on more and more personal debt. We also see studies with scary numbers regarding debt. For example, according to the RBC Household Debt Report of 2017, 64% of Canadians carry some sort of debt on a monthly basis, and 25% owe more than $25,000 in total debt.
Now to be clear, debt is not always a bad thing; borrowing can in fact be a very effective and useful strategy. For example, a mortgage is a form of debt, and in many cases it’s considered “good debt”. It is up to you to manage your debt in a smart way. Here are some tips to help you do just that.
64% of Canadians carry some debt on a monthly basis; 25% owe more than $25,000 in total.
1. Work on changing your habits
If you find that your finances are slowly spiralling out of control, we need to take a look at how you got into the current situation. Changing old spending habits is an essential part of this process.
The best way to do that is to create a budget, and more importantly, stick to it. There are many tools and articles available online such as the ones on our site which can help you put together a budget.
2. Know exactly how much you owe
If you are not fully aware of how much you owe, let’s do a simple exercise. Start listing all the financial obligations you have. Have columns for the total owed, the due date, interest rates, and minimum payments. Organize them in ascending order.
By putting information in a simple table, it will become much easier for you to access this information, so you can incorporate it into your budget.
3. Create a budget which includes debt repayment
If you have a budget, that means you have a plan you can commit to. When making a budget, take into account your monthly fixed costs like rent/mortgage and monthly variable costs like dining out/entertainment. Make a commitment to set aside a portion of your income every month which will go towards debt reduction.
4. Use a smart debt repayment strategy
Prioritize the debts with higher interest rates. By focusing on those debts first, you will help yourself save a lot of money in the long run and get out of debt faster. If you can, share your plan with a partner or family member to keep yourself accountable to this strategy.
5. Sacrifice in the short-term
Happy hours with friends, eating out and impulsive purchases can impact your budget. Be aware of how often you are spending money on leisure activities and unnecessary purchases. Reduce your luxury spending during times where debt repayment is more important.
6. Track your progress and celebrate
Set some milestones for your “debt repayment project” and celebrate your achievements. It can be that delicious Starbucks seasonal coffee that you’ve been avoiding buying, or a box of chocolates to enjoy while watching a movie at home. Nothing expensive, of course, but some small treat you’ll enjoy!
These are strategies that may help you manage your debt, save money, and cut expenses. Of course, if you find that you need more help, there are financial advisors out there who are able to assist you as well, and there are even many that are free!
Finjoy Capital is not a financial advisory firm.
This article is for informational purposes only and is not a substitute for individualized professional advice.
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