Reset Your Budget And Get Out Of Debt

An In-Depth Guide: Five Ways To Reset Your Budget And Get Out Of Debt

Staring at a mountain of debt can be a daunting experience. You might be making minimum repayments, saving yourself from the dreaded collections calls, but the interest keeps piling on. You’re desperate to reset your financial landscape, to get rid of the debt—but you’re unsure about the first step. Here, we will explore five strategies to regain control of your finances.

The Power of Consistent Monthly Payments

High-interest debts like credit cards or payday loans can take decades to clear off if you’re only making the minimum payment each month. To make a substantial dent, you need to make regular monthly payments that cut into the principal amount. Here’s a simple process to figure out what you can afford and how much you should contribute:

Evaluating what you can afford:

 

  • Calculate your monthly net income. Check your online banking deposits and add them up.
  • Draft a list of your monthly living expenses—groceries, rent, utilities, mobile phone, internet, etc.
  • Deduct your expenses from your income to find your disposable income.

 

Determining your contribution:

 

  • Divide each of your debts by the number of months within which you wish to be debt-free. This gives you the monthly amount you should contribute towards each debt.
  • This way, you can allocate a specific amount towards your debt repayment, leaving you with some disposable income for savings or other expenditures. Remember, the interest will still accumulate, but you’ll be much closer to a debt-free life than if you were only making minimum payments.
  • If your calculated contribution surpasses your capability, adjust the number of months for debt clearance until you reach a manageable monthly amount. If your contribution is at or below your minimum payments, you may need to consider more drastic measures, such as bankruptcy or consumer proposals.

 

The Consolidation Loan Route

If you’re eligible for a bank loan that can cover your existing balances, a consolidation loan can be a cost-effective and efficient way to get rid of debt, especially if most of your debt stems from high-interest sources like credit cards or payday loans. Instead of juggling multiple creditors, you’d only have to make a single payment and could potentially reduce your interest costs by 50% to 75%.

Ensure that your consolidation loan comes from a reputable bank or credit union. Other lenders might charge interest rates comparable to or higher than your current rates, which would not improve your debt situation.

Boosting Your Income

If you have the resources, time, and energy, consider part-time employment or other income-generating activities to expedite your debt repayment goals. Companies like Uber and Skip the Dishes allow you to set your own hours. Online marketplaces like Amazon, E-Bay, and Etsy are excellent for selling handmade crafts or gently used items. Traditional part-time jobs, like in retail or the restaurant industry, could also be viable options.

However, remember to account for the added costs involved in these ventures—childcare, fuel, tools, and other supplies. The potential income might seem attractive, but ensure your efforts bring about a significant net benefit.

Asset Liquidation

If you have assets that can be sold or liquidated to repay your debts, this could be a quick and effective solution to significantly reduce your debt load. Unused cars, jewelry, matured GICs, real estate, and other investments could be potential sources of cash flow.

However, it’s recommended to seek professional advice before liquidating any investments or registered savings plans, to ensure that potential tax costs don’t outweigh the debt reduction benefits.

Bankruptcy or Consumer Proposal

For many, bankruptcy or consumer proposals are the last resort. But for those who qualify, they can be a life-changing solution and a quick path to a fresh financial start.

Both bankruptcy and consumer proposals are formal repayment plans governed by federal legislation and executed by a Licensed Insolvency Trustee. They offer debtors a clear path to freedom from debt while ensuring creditors receive full or partial repayment.

If you’re considering a bankruptcy or consumer proposal, it’s crucial to consult with a Licensed Insolvency Trustee to understand your options.

The journey to becoming debt-free might seem long and challenging, but with the right strategy and discipline, you can reset your budget and get out of debt. Take the first step today.

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