Debt Reduction Advice For Canadians
It’s almost too easy to miss a few payments and end up in debt.
The problem with many debts – particularly credit card debt – is that you start owing more the moment you miss a payment.
Late fees kick in, interest rates start adding to the costs, and you become overwhelmed.
If you’re not careful, you can easily feel trapped and suffocate under your growing debts.
But, there are simple ways to get yourself out of this position.
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It won’t necessarily be easy, and it won’t happen overnight, but you can climb out of debt and find some relief.
Here’s a five-step plan anyone can follow:
Calculate your debts
It’s fair to say most Canadians with debt have no idea how badly in debt they are.
You’re aware you owe money here and there, and you know it’s a lot, but you don’t know the specifics.
This is what often leads you to fall further behind and letting your debts mount up.
So, your first step is a simple one: calculate your debts.
Get your financial information together and work out exactly what you owe and to whom.
Now, you have all your debts written down and ready to organize
From here, you can also organize your debts in order of importance.
Naturally, this depends on the individual, rather than specific debts.
Credit card debt may be a priority for you as it is the most amount of money you owe, and your interest is outrageously high on it.
But, someone else may have minimal credit card debt but a huge payday loan to repay that’s getting bigger and bigger.
In essence, importance is based on which debts are the most threatening to your financial situation.
Tackle these first!
Set a budget to figure out what you can afford
When you’ve calculated your debts, the next step is to set a budget.
Or, more accurately, attempt to create a budget based on your income and essential expenses.
The aim is to calculate how much money you bring in every month, and how much you can afford to spend on debt repayments.
This can be tricky, and you might be horrified at how much money you spend each month on needless things.
Either way, tighten your budget to take care of your bills first, set aside money for essential living expenses, and then see how much is left over to pay off your debts.
If you’re lucky, your budget will show that you can afford to keep up with your repayments.
All it took was a small clam down on non-essential expenses to do this.
Unfortunately, your budget may reveal you do not have enough money coming into your account to keep up with your current payments.
In this case, move to step three.
Try to lower your monthly debt payments
If you’re in a situation where you physically cannot make your current debt payments, then you have a couple of options.
You can negotiate with your creditors to come to some sort of agreement.
This is sometimes referred to as debt restructuring as you are restructuring the terms of your debt.
A common example of how this works is your creditor removes or reduces your interest rate, meaning you can now make the monthly payments.
They might extend the term length to give you more time to pay off the loan, which also allows for lower monthly payments.
As a basic example, instead of paying $100 a month for a 12-month loan, then extend it to 24 months, allowing you to pay $50 a month instead.
The other option is debt consolidation.
We recommend this to a lot of people as it is the easiest way to clear all your debts and merge them into one.
A debt consolidation loan will pay all of your creditors in one go.
You are left with a single monthly payment to repay your new loan.
It sometimes becomes less expensive as the interest rate for the loan is a lot lower.
Plus, most debt consolidation loans are set up with payment plans that specifically suit your budget.
Just like that, you can significantly reduce your debt.
Cut back on things that add to your debt
After the first three steps, you’re in a position where you have a budget and can start paying your debt off.
This is a fundamental aspect of your debt reduction plan, but it’s not the only thing you should do.
Alongside this, be sure you cut back on bad habits that can add to your debt.
For example, stop applying for more credit.
Don’t apply for any extra loans apart from a debt consolidation one if required.
With a budget, you should have no need to borrow money as you’re reducing spending and saving more cash.
Another loan will just add new debt and slap more interest rates to deal with.
The same goes for credit cards – avoid using yours!
Don’t get rid of them completely, but set up a direct debit for one payment a month.
It can be for one of your smaller bills.
Then, cut the card in half or hide it.
Now, you only make one payment on the card, leaving a small credit card bill to repay in full.
It’s beneficial as you can build your credit score without worrying about using too much credit and ending up in more debt.
Set debt goals
Finally, set goals to achieve with your debt reduction plan.
As an example, aim to pay off a specific amount of money in the next three months.
If you achieve the goal, reward yourself with something nice.
This incentivizes you to try really hard and stick to your plan.
Keep adjusting your goals when you meet them – perhaps increase your targets to help you reduce debt even quicker!
Get professional help with debt reduction
The five steps above will help you reduce debts as quickly as can be.
But, if you need professional guidance, we can help.
We offer a range of debt-relief services designed to help you control your finances once more.
Call us today to book a consultation, or fill in our online evaluation form.