Canada’s consumer debt crisis has been centre stage recently, particularly with a federal election looming and estimates that show Canadian homeowners in the hole for $1.4 trillion. According to a recent survey by a Canadian bank, 71 per cent of Canadian homeowners say debt reduction is a major financial priority. However, just 51 per cent said they reduced their total debt over the past year.
Debt results from out-of-control credit. Credit in itself can be helpful – it allows us to meet important or urgent personal, family and business needs today, with funds that we expect to earn in future. But credit must be managed wisely so it does not become a debt burden.
Following simple financial management tips (and getting guidance from a financial professional) can help you reduce debt and once you get underway, getting rid of spiralling debt not only begins to feel attainable, but rewarding, too.
Here are my top tips for creating a debt-reduction plan:
• Consolidate your debt. Having one monthly payment is easier on your wallet – not to mention your mind – and will streamline your monthly debt expenses. Additionally, consolidated loans have just one interest rate, which will minimize your interest payments and enable you to pay less over the long term.
• Study your monthly expenses for opportunities to cut costs. Create a monthly spending plan, but be realistic with your budget – it’s important to allow for little luxuries. However, look hard for monthly expenses you can eliminate and multiply this by 12. Seeing how much you can save and direct towards your debt annually can provide just the motivation you need.
• Get a handle on credit cards. Compare rates to find the credit card with the best rates for you and stick with this card for your purchases. You may be able to negotiate rates with some credit card providers so look into this. When you get your bill, pay the maximum you can, not just the minimum payment. And don’t overuse your credit card – whenever possible, save towards your purchases.
• Make bi-weekly payments. Paying bi-weekly means you make 26 payments a year instead of 12. By paying more frequently, you pay less interest over the life of the debt product, which will allow you to pay off your debt faster.
• Talk to a financial planner to help you establish realistic goals for paying off credit card and other consumer debt (lines of credit, vehicle loans, mortgages, etc.). A financial planner will show you how to balance your spending and save simultaneously.
Kathy McGarrigle serves as Chief Operating Officer for Coast Capital Savings.