The Freedom of a Debt-Free Life
If you think it’s not possible to live debt-free, think again!
Not only is it possible to live debt-free, but you can also do so while still enjoying more than just the bare necessities.
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Make a plan – then stick to it
The first step of action in reducing your debts to live debt-free is to make a plan, then stick to it.
The freedom of a debt-free life is rewarding, but it can be difficult at the beginning.
To start, list out all of your debts, including credit card debt, vehicle loans, payday loans, or money you owe to friends and family.
This may be one of the hardest parts of living debt-free; it can be overwhelming to see your debts all grouped together.
Next, look at which debts you might be able to downgrade.
While you will have required debts like a mortgage or rent, or vehicle loans, it doesn’t mean that you can’t downsize these debts.
If you’re living beyond your means, you’ll need to decrease your spending.
Should you have several high-interest credit card debts, consider looking into debt consolidation options.
If this collection of debts is overwhelming, you may need to seek out a financial expert to get you on the right path towards a debt-free life.
Create a Budget
Your next step is to create a budget.
Calculate your monthly income, and then directly compare your monthly debts to your monthly income.
Ideally, you should be looking at the last six months of spending since one month may not be the best example of how you normally spend money.
After you’ve done this, make a list of needs along with how much they cost.
Now, subtract your “needs” from your income.
How much is left?
This is how you should decide how much you put towards savings, how much you should be paying down your debt, and where you’ll be able to throw in a few “want” items.
If your current monthly debts are substantially higher than your monthly income, seek help.
Pay down debt
If you really seek the freedom of a debt-free life, you’ll need to pay down your debts fairly aggressively.
Each month, work to pay as much as you comfortably can on any high-interest loans or credit card debts.
If you’re making minimum payments on your credit cards, you’re primarily paying the interest, not the principal.
The more you can pay each month, the quicker the interest decreases as the principal does.
So, each month you pay more than the minimum, you’re also paying more of the principal.
This is why you should aim to pay down high-interest debts first, then work on smaller or lower-interest debts thereafter.
Once you are able to stick to your budget and have paid off your debts, welcome to the debt-free life.
It is up to you whether you put money towards savings, which is advisable, or whether you loosen your budget slightly to put more “wants” back into your plan.
When to seek help
If you look at your debt and realize it’s too far out of reach when you compare your ideal budget and your income, then you have a few options.
First, as mentioned earlier, you may want to consider downsizing, such as selling your expensive car to get rid of the expensive loan and opt for something a lot cheaper which you can easily pay each month.
The second option is to look for higher income, but that can take months to secure.
Thirdly, consider seeking outside professional help.
At Bankruptcy Canada, we can set you up with a financial professional for an initial assessment to see if you are a good candidate for informal options like debt consolidation, or more formal solutions like a consumer proposal to help eliminate some of your outstanding debt.
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?