In North America, many of us tend to find ourselves in more debt than we’d like after the gift-giving season of December has passed, and a report in the Globe and Mail in 2017 found that per capita household debt has continued to climb in Canada. Many of us also find ourselves making New Year’s resolutions to get our finances and debt under control. If reducing your debt is one of your goals this year, several proactive strategies exist for succeeding!
Assess Your Debt Realistically
It can be surprisingly easy to accumulate a large amount of debt without realizing it, especially as pre-authorized payments for bills and automatically withdrawn mortgage payments have automated the process for us. However, it’s important to have an accurate sense of your total debt — not just the monthly or weekly payments you’re making.
What do you have debt on, and how much do you owe in total? Which debt is your highest priority to pay off? While some people only have minor credit card debt to worry about, others might be dealing with a student loan, mortgage, car debt, and more. Often, people are apprehensive about viewing their debt as a whole because it can be discouraging. However, the only way you can formulate a plan to pay off the debt is to understand exactly what you’re dealing with.
Make a Plan
Once you’ve assessed your debt situation, sit down with your wealth manager to determine how your debt intersects with your overall financial goals — and don’t be ashamed to do so! Many people struggle with debt in isolation, because they feel guilty or embarrassed about the debt they’ve accumulated. But your wealth manager is not there to judge you — he or she is dedicated to your financial success, and understands your goals. If you let your wealth manager know that debt reduction is a top priority for you, he or she can provide you with a plan for getting back on track.
Finding ways of reducing your spending (no matter how small the expenses may seem) is the key to tackling a large chunk of debt over time. Can you reduce expenditures on eating out, or other unnecessary expenses (even just for a short period of time)? If you’re seeking to reduce your credit card debt, can you find ways to halt your credit card usage until the card is paid off? These small changes will add up to faster debt elimination.
Introduce Alternative Income Sources
While this option is not available to everyone, some Canadians find success in debt reduction when they are able to introduce extra income sources like taking on more freelancing projects, hours at work, or looking for part time contracts. If you have valuable possessions that you’ve been meaning to sell, now might be the time to do it.
Whatever alternative income sources you do find, make sure you consult your most trusted tax planner to determine how your new income will affect your tax liability.
Increase Your Monthly Payments
If credit card debt is your biggest hurdle right now and paying off the entire balance isn’t realistic, try increasing your monthly payments — even if it’s only a small increase each month. Whatever you can do to accelerate the pace of your debt elimination will benefit you over time, as it means less interest for you to pay off.