Five Steps to Becoming Debt-Free
If you can’t seem to keep up with the endless cycle of bills landing at your doorstep, you are not alone. The average Canadian now owes $22,595 in consumer non-mortgage debt according to debt monitoring firm Equifax. It’s easy to get in the habit of falling behind on payments or using lower interest credit cards to pay off higher ones, ultimately leaving you feeling as if you’re drowning. Here are five tips to becoming debt-free this year:
1. Create a realistic budget…and stick to it!
It is important that you have a solid foundation and plan in place to pay off your debt. This starts with creating, and sticking to, a realistic budget. Start by calculating your expenses and your income. Review your receipts and bank statements to create a clear picture of your expenses and ensure to include any extra funds besides your salary to your income.
2. Stop borrowing
If you are struggling with debt, you need to stop borrowing to fund your lifestyle. This means saying no to that new credit card offer and cutting out loans to purchase new furniture, electronics, cars, etc. Focus on paying off your current debts before taking on new ones.
3. Prioritize your most expensive debt
Firstly, it’s important to decipher “good debt” from “bad debt”. The Government of Canada defines good debt as being an investment in something that creates value or produces more wealth in the long run such as a mortgage or student loan whereas bad debt is debt taken on to buy something that immediately goes down in value or to buy something that you can’t repay on time such as charges on a credit card or a personal loan. Start by focusing on paying off the highest interest rate bad debt first.
4. Pay more than just the minimum payment
It can be tempting to only pay the minimum monthly amount on your credit card or loan. As tempting as it may be, you should always try to pay more. By doing this, not only will you save on interest charges but you will pay off your total balance much faster.
5. Seek professional advice
We know that dealing with debt can be an obstacles to reaching financial freedom and obtaining your financial goals. Creating an overall plan to manage the repayments and take advantage of tax deductions may be outside of your knowledge base. Regardless if it is a mortgage, line of credit, car loan or other consumer credit, there are often tricks the average consumer is unaware of. While we don’t negotiate debt for you, we can be an objective sounding board to help you make these important decisions. Contact us today to schedule a free financial consultation and set yourself up to become debt-free in 2018.