Did you know that the average debt of a Canadian household is over $ 96,000, or 197% of average income? If you want to get out of debt, there are many ways to get there. Each strategy can have a significant impact on your finances if you take it seriously and are ready to follow your plan. But where to start?
Create a strategic spending plan
First, take a piece of paper and write down your income after taxes and all expenses are withdrawn, indicating the minimum payments made each time. Classify your expenditures according to their importance and analyze the costs at the bottom of your list to see if they are essential. The goal here is to create a plan where your costs are lower than your income.
You can complete this plan by allocating a budget for each type of expense (rent, groceries, outings, clothes, etc.). To help you establish it, you can use the budget calculator set up by the Government of Canada.
Make a list of all your credits
Make an inventory of everything you need and indicate the interest rate for each entry (credit cards, mortgage, car loan, etc.). You can classify them by starting from the credit with the highest or the lowest interest rate to establish an order of priority to repay them.
Choose a repayment strategy
You can either choose to pay the minimum amount on all your credit cards except the one with the lowest interest rate, or you can choose to pay the minimum amount on all your credit cards except the one with the highest interest rate. In the first case, it is the Snowball method, and in the second, the Avalanche method. This choice depends on your personality.
If you adopt the Snowball method, you focus on the debt with the lowest interest rate. By choosing to start this way, it will take you longer to pay off your debts, and the overall interest rate will be higher, but the effects will be seen more quickly, encouraging you to continue doing so.
If you adopt the Avalanche method, you focus on the amount with the highest interest rate. You then choose to get rid of the most significant debt as soon as possible by adopting higher payments. Once this debt is paid, you can move on to the next debt and continue until you have repaid all of your debts.
These are just two of the many strategies. Do not hesitate to inquire well to choose the one that best suits you.
Use a debt payment calculator
By entering all your amounts in the calculator, the latter offers you different strategies to put in place, as well as a payment schedule indicating the number you must give per month to each of your creditors. You can use that of Cal cXML or the credit card payment calculator set up by the government
Choose biweekly payments
By making a payment every two weeks and not once a month, you can segment your expenses and add an extra month to your reimbursements each year (you will then make 26 payments or 13 months of compensation)
Automate your payments
If you are not yet sufficiently comfortable with the organization, you can set up automatic debits between your creditor and your bank. You can choose the amount and the date of withdrawal to ensure that there will be enough funds in your bank account.
Learn about interest rates
It is possible to take advantage of lower interest rates, but for that, you have to ask. If you have a good payment history (and threatening to leave elsewhere), some creditors may offer you a discount. If nothing is done, you can choose a credit card with a lower interest rate and transfer your balance. Read the conditions of your new bank carefully so as not to be surprised.
You can also opt for debt consolidation, which allows you to consolidate all your debts with a lower interest rate. However, your credit report must not be too “catastrophic” to be accepted.
You can set up milestones and the rewards you give yourself once you get there. It doesn’t have to cost you money, but it does keep you motivated. This is important because there may be times when you face an unexpected expense that can make you give up.
Avoid bad habits
Once you start paying off your debts, you should avoid taking on more. To do this, you can set up some small techniques such as paying for your purchases in cash or with a debit card, not succumbing to the offers “buy now, pay later,” and above all, respect your budget by spending no more than what you earn.
Paying off debts is long-term work. If you feel that you are losing your footing or if you do not feel capable of handling this situation alone, do not hesitate to consult a professional. It is undoubtedly an investment, but it will allow you to make the right choices in repaying your debts.
Further more info about debt relief or payday loan debt relief you can visit online.