It's very common to be living with some form of debt. In fact, more than 70 per cent of Canadians have debt, according to Statistics Canada. However, life can be unpredictable, and that debt can add up and accumulate in a hurry when things go wrong. Battling it can seem like a never-ending cycle, but there are ways to get out of debt. You just need the right plan.
Canadians and Debt
Statistics Canada's 2015 report on household debt contained some eye-opening facts:
• Canadians borrowed $26.3 billion in the second quarter of 2015
• The Canadian debt-to-income ratio is at a record-high 164.6 per cent
The Bank of Canada's interest rates are extremely low right now, which is giving people incentive to borrow against home equity. And for those who don't have that option, you may be borrowing with credit cards that have high interest rates.
But that's living on borrowed money. For those who carry large amounts of debt, and/or are living paycheque to paycheque, a sudden change can ruin your financial plans. You could lose your job, be hit with sudden, lofty expenses (like medical bills), or the interest rates could rise.
For those in debt, any such changes can result in damage to your financial well-being. And with interest charges, it can pile up and accumulate. And worst of all, debt could lead to damaged credit that could leave you feeling its effects for years to come.
Tips to Get Out of Debt
If you want to free yourself from debt, you need a plan. You can battle back from debt and stay on top of it for good with the right strategy.
- Track and Analyse Spending
For one month, make note of every single thing that you spend money on, even if it's a measly loonie. Or, you can print out your last three or four months of bank and credit card statements to get a look at your spending habits. Many people are shocked to learn what they are spending on certain things. Use these exercises to identify expenses to cut back on, or cut out completely.
- Start Making Changes
In order to set a budget that is going to help you get free of debt, you are going to have to make changes to your financial habits. They could be big changes - like cutting cable, getting an extra part-time job, or reducing your cell phone data plan to the bare-bones minimum - or they could be little tweaks to cut back on your "soft costs." Examples of the latter include always bringing your lunch to work, or not stopping for a coffee every single morning. Those little out-of-pocket costs may seem insignificant, but they can add up in big way.
- Set a Stricter Budget
Give yourself a monthly spending allowance and stick to it. The costs of your bills should be engrained in your mind. Know when they are due and never miss a payment. As for variable costs, like gas and groceries, have a set limit for what you can allow yourself to spend and adhere to it. The goal of budgeting is not to spend as much as you make; the goal should be to spend significantly less than you make. Too many unexpected things can happen in life to be living paycheque to paycheque.
- Strategically Eliminate Your Debt(s)
You need to strategically pay off your debt(s) with the money you have freed up from changing your spending habits and keeping to your budget. Are you delinquent on any of your accounts? You should probably get current on those first. You also should work to get the balances down to zero on high-interest credit cards. Do you like to plan ahead? Set a time-stamped plan to take care of any home equity lines of credit or your mortgage.
It may require some hard work, but that hard work is going to pay off in a big way when you are free of debt!
Sometimes You Need a Car
Life is full of surprises, and you could find yourself in need of a car in the middle of your budgeting plan. When your credit is compromised, you'll need somebody who understands your situation. The team at Canada Auto Loan is here for you when you need an easy car loan. All you need to do is fill out our easy and free online application to get the process started.