4 Debt Reduction Strategies
Some would say, a little debt is an inevitable part of getting by in 21st century Canada.
But unless we build good money habits like saving and budgeting, we can start to use debt as a crutch.
In an age of low interest rates, we’ve become used to easy access to cheap credit.
But the more of this credit we use, the more our debts can spiral out of control.
As such, we may find that more and more of our monthly income becomes subsumed by debt.
With numerous repayments taken from your account at different rates of interest throughout the month, it can be hard to keep track of your debts, not to mention adding to the psychological toll they take on your wellbeing.
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The good news is that whatever your debt and whatever your circumstances, there’s always a way in which you can get take control of your debts and prevent them from being detrimental to your wellbeing.
Here we’ll look at 4 debt reduction strategies to help you reduce your debts.
Consolidate your debts
Part of what makes debts difficult to manage is that each debt you take on has a different rate of interest.
As you take on more debts, you risk throwing more of your monthly income away on interest, not to mention charges and fees.
A Debt Consolidation Loan can help you take control of your finances while paying off your principal (the amount owed) faster.
Consolidating all of your existing debts into a single loan can make them much easier to manage.
Debt consolidation loans still incur interest, but their rates are generally much lower than what you can expect to pay on a credit card or unsecured loan.
What’s more, when you take on a Debt Consolidation Loan, it pays off all of your existing debts and replaces them with a single new one.
This can significantly improve your credit score.
Nonetheless, you should be wary of taking on new debts just because you can.
A far more sustainable alternative would be to…
Take control by budgeting
In contemporary Canada, we tend to take credit cards for granted.
But the truth is that they’ve only been around since the 1960s.
Did people make big purchases before the advent of credit cards?
Sure, they did.
But they played the long game.
They budgeted and saved until they could afford to buy the things they wanted.
When we have such easy access to credit at appealingly low (to begin with, anyway) interest rates, we can become overly reliant on it.
However, the most sustainable way to live debt-free is by forming good money management habits so that we need not rely on credit.
The best place to start is with a good household budget template.
This will help you to better track your expenses and account for all the little things which quickly add up by the end of the month.
When you have a clear overview of everything that goes into and out of your household, you can make cuts in other areas of spending to ensure that you don’t miss repayments and incur fees or charges.
You can also ensure that you set money aside to put into your savings account to prevent yourself from becoming too reliant on credit in the future.
Try Credit Counselling
While budgeting and saving are essentials for every household, your debt may be such that it makes budgeting untenable.
Moreover, if you have a less than stellar credit rating, a bank or lender may reject your application for a Debt Consolidation Loan.
An alternative option, however, may be to approach a Credit Counselling service.
These are usually non-profit organizations (although there are some private ones, too).
They can help by negotiating a Debt Management Plan with your creditors on your behalf, and may be able to arrange more favourable terms.
Again, this can ensure that you pay less in interest, or in some cases interest may be stopped altogether.
The end result is the same- you get out of debt faster.
It’s important to note, however, that there are some debts for which Credit Counselling and Debt Management plans are unfortunately not applicable.
For instance, if you owe money to the CRA or have a Student Loan that is 7 years old or more, this solution cannot be leveraged against these government debts.
The good news, however, is that you still have another strategy to try.
Get in touch with a Licensed Insolvency Trustee
As useful as non-profit Credit Counselling services can be, they are not able to advise you on all the options available to you.
On the other hand, a Licensed Insolvency Trustee can help to provide debt management relief that nobody else can access.
They can, for example, act as a Proposal Administrator if you choose to set up a Consumer Proposal with your creditors.
This may help you to write off up to 80% of your debt and freeze interest and charges.
All you need is for a 51% majority of your creditors to agree to the terms, and all are legally bound by them whether they agreed or not.
Alternatively, they can help you with the logistics of filing for Bankruptcy, ensuring that you make good on your obligations within the crucial first 9 months.
This can ensure that your debts are automatically discharged and that your claim doesn’t go to court.
How we can help
At Bankruptcy Canada, we’ve been helping people from all walks of life to escape the financial, emotional and psychological stranglehold that debt has placed on their day-to-day lives.
We can help you to find a Licensed Trustee who can act in your best interests and advise on the best solution for your unique needs.
Want to know more?
Get in touch with us today on (877)879-4770.
We’ll be happy to arrange a risk-free, zero-obligation and 100% confidential callback.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?