Top 25 Tips To Become Debt Free in Canada
The only question that brothers all those who are neck – deep in debt is how to get out of debt. There are some very worrying statistics that Canadian household are staring at right now when it comes to debt and debt management.
Some Worrisome Statistics About Canadian Debt Situation
According to an online article published by the Financial Post, the country has one of the highest debt-to-income ratios in the world and is outspending all the other G7 member countries. Some studies have estimated that an average Canadian spends $3 for every dollar that he earns. Now, this can’t be a pleasant stat, isn’t?
You may be wondering how to pay down debt without borrowing more when there is no additional income. Believe it or not, there are some ways to get out of debt faster. Yes, these require discipline and sacrifice temporarily but the feeling of being debt free again can act as big motivator.
Ideas about paying off debt
- Make a budget – A budget may sound boring but is an important piece of document for those in debt. You have to be realistic when creating a budget. You need to understand first what a need is and what a want is. A budget would help you to understand the expenses that you will have to bear and those that you can hold off till your financial condition improves. Buying groceries is a ‘need’ that you can’t do without even during the worst financial crisis, but a spa message is a ‘want’ that can be avoided till things improve. Make allocations under different heads and try to stick to the budget as much as possible.
- ‘Get out of debt’ plan – A debt plan is another important piece of document that can help you to manage your debts. You need to write down all your debts in descending order in terms of higher interest rate to lowest interest rate or in terms of value of the total loan. Keep paying off the debts one by one and keep striking them off the list. Stick it to your computer monitor or the mirror where you can see it every day and as you see the debt going down, it can infuse confidence in you.
- Consolidate an emergency fund – one important method of tackling your personal debt crisis is to start an emergency fund where you would put your savings and extra incomes. This can come in handy during the payment of debts. Try to put $1000 or more and try to make it grow bigger. Use it to pay off debts.
- Use debt snowballing method – Debt snowballing is a method that can give you a much-needed psychological boost. You need to start paying off the debt which is the smallest in terms of value while paying the minimum due amount for all the others. once you clear off the first one, target the next highest debt. This way, you will constantly have more money to pay off the next bigger and so on. This way, you can save more money on interest.
- Use debt ladder method: Debt snowball may not be the most efficient method. This method is more effective because you pay off the one with the highest interest rate first and then move on to the next bigger and so on. This way, you can save more money on interests.
- Debt consolidation loan: Try to get one loan with lower interest rate and thus lower EMI by combining all the loans into one. There is less hassle and less documentation because you only have to concentrate on one loan payment. At Cashco, we offer Flex Loans that can be easily used to consolidate debt and rebuild credit scores as well.
- Consolidate loan into mortgage: If you own a house for which you are already paying mortgage, try to consolidate all the other loans with this mortgage. Mortgage has the lowest interest rate in Canada, you get generally 25 years or more to amortize the home loan. So, you will get more leeway to pay off your debts.
- Move to a smaller rented apartment and lease out your own home: If you have a big condominium in the suburbs, you can lease it out while you move to a small apartment. You will save a lot of money which you can use to refinance your debts.
- Take a second job or increase shifts: If possible, try to supplement your main income by doing a side business or freelance job that can give you extra cash.
- Stop using your credit cards: Till your financial situation improves, freeze your credit cards and use cash while buying items because that would prevent you from borrowing more money. The money you would save will be more than what you save in cash backs and loyalty points that you can earn.
- Asset sale: If needed, you may have to sell off your luxurious items of things you can do without and generate extra cash to pay down your debt.
- Use your savings: If you have small savings, use it to pay off as much as debt as possible.
- Take help from a credit counselor: A lot of good credit counselors offer their services for free in Canada. Talk to them to understand how you can save more money or your options for repaying your debts.
- Reduce expenditure on groceries: Start buying items in bulk to get additional discounts. Start buying from value stores which offer better value deals.
- Sell off cars: Start depending more on public transport or start carpooling with your colleagues. If you have more than once car, keep one and sell the rest. You can always buy again after you are free from debt.
- Pay more than minimum due on credit card payments: If you follow this advice, you can pay off your dues faster. Always try to pay more than the minimum amount required on as many debts as possible.
- Pay in small amounts in quick intervals: Try to pay the bills and debt in small amounts as often as possible rather than waiting for the bill to become substantially large. Some debts carry interest daily and it can become big quickly.
- Negotiate with you lender: Try to negotiate a one-time payment deal with your lender which allows you to pay off the principal or lowers the interest rate significantly. Don’t feel shy to talk.
- Cut down on partying and eating outside: You need to start eating at your home more. Cook more for dinner so that you can use the leftovers for the next day’ lunch. Pack your own food to office. Don’t host in-house parties till you are out of debt.
- Stop making impulsive purchases: Try to control your urge to make unplanned purchases till the financial situations improves. Don’t buy clothes or accessories that you don’t need.
- Surrender your home landline: Surrender your home landline if you a good cell phone connection.
- Take a budget data plan: A good data plan can help you save a lot of money. Control the internet usage at home.
- Involve family members in brainstorming sessions: Even your children have a right to know the financial situation and they will have to play a part, if you seriously want to reduce your debt burden. Hold weekly or monthly meetings where family members can make suggestions or give an estimate of the savings that they have made.
- Start reading books on financial and debt management: Canada has many free public libraries where you can get books that teach you to manage your debt. Read them and try to follow the instructions.
- Ask for a soft loan from your relatives: Borrowing money from relatives is never the best way to go about the business. But, if you are confident of being able to repay the debt, you can ask one of your well -to-do relatives to give you a loan and try to make payments as per the schedule. Don’t fail because it can tarnish your image and destroy your relationship.
Managing and getting out of debt is understandably difficult but can be pulled off with determination. Never stop believing in yourself.