Canadian households have a debt problem. Last year Canadians filled the most insolvencies since 2009 at 140,585 filings and this number is up 9.3% from 2018.
Getting a handle of debt can be overwhelming, but here are 3 tips to get you started on tackling your debt.
Step 1. Know your debt details
This includes all the facts that you know about who you owe money to, how much you owe and what the interest rate is. Writing down your minimum monthly payment amounts is also useful, along with an estimated time required to pay off your debt if you were to only pay the minimum payment. For example, if you are carrying a $2000 balance on your credit card that charges 22% interest and you are making the $40 minimum payments every month, it would take you over 30 years to pay off that debt.
Step 2. Review your spending plan
With a realistic spending plan or budget, you may find that you have some extra money to put towards reducing your debt. If you don’t find extra money easily, look at your budget for areas where you can reduce your spending. This doesn’t mean you need to deprive yourself of what you want, but instead of buying a $5 latte three days a week, if you buy it only two times a week and save the $5, that’s a little bit to put towards your debt.
Step 3. Prioritize paying your debt
Create a payment plan, either by contacting your creditors and negotiating a plan, or if your debt is manageable, by creating a Power Pay plan. Power Pay is when you pay the minimum payments on all your debt, plus a little extra on either the debt with the smallest balance (the snowball method) or the debt with the highest interest rate (the avalanche method). Either way you choose, the Power Pay plan will get you out of debt faster and save you money on interest.
If you want to learn more about how to manage your money, join us for free money management workshops.