Have You Made Paying Down Your Debt a Priority?Oct 01, 2014
More and more Canadians are answering “yes” to this question, demonstrating a desire to control mounting debt load and financial challenges. In fact, according to a CIBC poll, the goals of debt reduction, budgeting, and paying bills have taken priority over longer term financial goals like retirement planning.
Having said that – saying that paying down your debt is a priority and actually making it a priority are two distinctly different things. Tackling a large amount of debt can be daunting to say the least and many don’t know their options, or where to get professional advice. Don’t succumb to the temptation to put it off, as this often limits your options and can increase your debt .Instead, make a plan and have every debt relief option explained to you, so that you can determine which option is best for you and your family.
Assess your debt load and its implications.
The idea here is to make a list of everything you owe – car, mortgage, credit cards, student loans, etc. Make sure you know the terms and interest rate for each debt and how long those interest rates will apply. Now make a list of all of your assets. Put it all on a spreadsheet.
Where is your money going?
Track your spending for a month. This includes all of your spending – your needs and your wants. Can you find areas to reduce your expenses? Can you downsize your cell phone plan or your cable TV package? How about streaming a movie at home instead of going out? Everyone’s needs and wants are different. The idea is to decide what you can live without, and then you can use that money for paying down your debts.
Decide which debts are most urgent and create a budget.
These debts usually include your mortgage, car payments and especially those that carry the highest interest rates.
Now that you have all of this useful information, its budget time. Be sure to include a debt repayment plan in your budget. Find areas where you can reduce spending (the “wants”) and increase what you spend on paying down your debts. Prioritize your debts that carry the highest interest rate. There are a number of useful online tools that provide you with step-by-step instructions for doing this. Check out the Financial Goal Calculator from the Financial Consumer Agency of Canada.
Consider every opportunity.
Move your higher interest credit card balances to one lower-interest credit card.
Work with your creditors to revise your payment plans. You may be able to negotiate a rate reduction. Get professional advice if you don’t know how to negotiate a lower rate.
Use all or a portion of one-time income (like a tax refund) to pay down your debt.
Take on freelance work, overtime hours or a part-time job. This isn’t a feasible solution for everyone. But if you can do it, use all or part of the income to repay your debt.
Avoid quick fix options like debt consolidations loans or payday loans. They don’t offer real solutions; they simply shift who you owe money to and in some cases have unfavourable terms.
Celebrate your victories
Making debt repayment a priority isn’t easy. As you pay off your debts, track your improvements by monitoring your credit profile and credit score online at Equifax Canada. Each debt that you put to rest is a victory for you, so pat yourself on the back.
Do you have any useful tips for dealing with debt?