According to CBC Canada, the average debt (excluding mortgages), for Canadian consumers in 2015 was $21,028, increasing from $20,880 in 2014. As the amount of debt increase, the levels of personal bankruptcy also continue to rise.
Here are a couple of ways you can reduce your debt and manage your finances.
Budgeting and Planning
Creating a reasonable budget and financial plan are essential to your success. It allows you to set goals for yourself and others in your household, and reviewing that plan regularly allows you to track your progress.
We have a handy monthly budget form on our website. Making a budget allows you to create an affordable repayment plan, while keeping track of your expenses. Once you have completed your budget and tracked your spending for a few months, you can start to set short and long term financial goals.
Make more than just the minimum payments
Making minimum payments gives the illusion that you are making headway into dealing with your personal debt. But by making only the minimum payments on your credit cards, you will be paying more interest over time. This means it will take much longer to pay down the debt.
For example, if you decided to take the “minimum payment” approach to debt repayment, in a situation where you owed $5,000 in debt with a 14% interest rate and made the minimum payments, it would take you 22 years to pay down the debt. That would be 22 years forgoing other spending in your life just so you can make the minimum payments. Use an online calculator to help show you the effect of only making minimum payments.
Tackle the highest interest first
Credit with a higher interest rate will charge more, and take longer to pay off. Make sure to allocate more of your surplus income to the credit with the highest interest first.
Reduce the temptation to spend
The more credit cards you have, the more tempted you may be to spend. If you have multiple sources of debt, add them to one grand total. This way you will be able to observe the total level of debt. Having multiple sources of small debt can trick you into thinking your overall debt is not that high.
Change your spending habits
Take a look at your lifestyle and see how you spend your money. Watching your expenses on your budget can help you do this. There are many small changes you can make to your routine that will save you money in the long run. For example, making your own coffee at home instead of buying Starbucks or bringing a pack lunch to work.