Once the holiday bills start coming in a lot of people are put into panic mode. Is this a sign that your debts are getting out of control? Is this going to be the straw that broke the camel’s back?Or is this situation going to be the motivation you need to take control of your debt?
A new report from the CIBC says Canadian debt is on the rise and that about half of Canadians aren’t going to take sufficient steps to stay on top of their financial priorities in the coming year.
The poll, conducted in December, found that 48 per cent of respondents didn’t plan to cut back spending on non-essential items in order to meet goals that include eliminating debt, keeping up with bills and growing their investments.
According to the latest data from Statistics Canada, the ratio of household credit market debt to adjusted disposable income crept up to 166.9 per cent in the third quarter, up from 166.4 per cent in the second quarter. That means, on average, Canadians owed $1.67 in credit market debt–mortgages, other loans and consumer credit–for every dollar of disposable income.
These are pretty scary facts and very costly too! Let’s say you are paying off a $10,000 credit card debt, at the rate of $350.00 per month, and the debt carries interest of 16% per anum; It will take you 37 months to pay off the debt and you will have paid $2,673 of interest!
If you’re on the verge of having your debts spiral out of control here are some tips that can help you take control of your debt and build towards a sound financial future.
Remember that you can get back in control. It is just a matter of whether you want to badly enough to stick to your plan!
- Prepare a budget so that you know where your spending is going and to identify where savings can be made so you can take control of your debt. Using an app is the modern way to budget. Using an app will take much of the drudgery out of budgeting. The app will summerize your spending by week, month or year;
- Use the results of your budgeting to identify where you can make savings how much and then make a plan for reducing and to take control of your debt;
The Snowball Plan. (This plan will keep you motivated and encourage you to stick to the plan to take control of your debt.) The snowball plan entails listing all your debts from least amount of debt to most amount of debt. You start to pay only the minimum on all your debts except for the smallest. You pay as much as you possibly can on this debt. When you’re finished paying off this debt you go onto the next debt and so on and so forth;
The Avalanche Plan. (This plan will have the debt paid off in the quickest time and cost you the least money so you take control of your debt most effectively.) The avalanche plan entails listing all your debts from highest interest to lowest interest. You would make the minimum payments on all the debts except for the highest interest debt and on that you would pay as much as you possibly can. Once that highest interest that is paid off you go onto the next highest interest debt and so on and so forth.
Here are some tips to take away the temptation of using your credit cards and help you take control of your debt:
- Apply for a prepaid credit card and cancel all your other credit cards;
- Cut up all your credit cards except for one that is for emergencies only. Your purchases should only be what you can pay for in cash;
- If cutting up the credit cards is too much for you to bear you can take your credit cards and cover them with water in the container and put the container of water in the freezer. This way if you were going to use the credit cards it takes a bit of effort for you to thaw them and retrieve the credit cards;