How to Pay Off Debt
How small changes can help reduce your debt load and improve your financial outlook.
Debt – a four-letter word that many of us know all too well. In fact, according to Statistics Canada, Canadians owe, on average, $1.78 for every dollar of disposable income earned.
Whether or not you currently have debt, you likely have a good understanding of how easily it can accumulate and how challenging it can be to change spending habits. It’s no wonder, when you factor in the rising cost of living – from near-record-high housing costs to increasing child care, gas and grocery expenses – and how relatively cheap it is to borrow money, with interest rates at historically low levels. With borrowing costs so low, it can be easy for debt levels to rise. So what’s an indebted Canadian to do?
In good company
Whether you spend more than you earn, make regular impulse purchases or have no idea how you are going to get rid of your debt, you are not alone. According to a recent survey by Manulife Bank, over one-third of Canadians living with debt admitted it was because they lived beyond their means, and nearly one-fifth said their debt was due to bad spending habits. Nearly one-quarter said they were making poor progress paying it down.
Making small changes can go a long way to fighting debt.
For example, the survey found that 16 per cent of indebted millennials said their debt is due to costly social outings.
However, 32 per cent of millennials said they are willing to skip dining out in order to pay down their debt.
What’s more, two-thirds of all Canadians said that eliminating their debt would bring them joy.
Learning better habits
People with good financial habits are less likely to be in debt and are better savers. And good financial habits cross all demographics with the same results: Manulife Bank found that more than half of indebted boomers pay their credit cards in full and on time; 40 per cent of millennials with debt say they put money into savings regularly; and over one-third of Generation X Canadians follow a household budget.
When you can shift your focus to better spending and savings habits, you’ll be able to make a good dent in your debt – even a few small steps could make a big difference. And if you can start now, even better. Here are some tips.
Keep a budget and track your spending. If you know where you’re spending your money, you’ll be able to make adjustments more easily – and there are numerous online applications and tools available to help. Some banking apps can help you evaluate your bills and spending habits, track your spending, and even help you determine what you can save and automatically shift that amount into a savings account. Some individuals might even find it helpful to have multiple accounts for different savings goals.
Adjust your non-essential spending. There’s usually a difference between what you want and what you need. Do you really need to get the latest smartphone release, or can you make do with your current phone? Examine all your spending and see what you can eliminate or reduce. Live simpler. The last thing you want to do is forgo fun with family and friends because of the cost. But restaurants, entertainment and travelling can be pretty expensive. Instead of dining out at that fancy new restaurant, think about entertaining at your home or, better yet, hold a potluck dinner. You may find cheaper seats for midweek theatrical shows, or discount concert tickets online. If you’re a sports fan, maybe opt for a live game with a local amateur division or farm team rather than a costly professional game. Or watch the big game at home with friends.
Pay yourself first. Use automatic payments to deposit a small amount from each paycheque into a high interest savings account. You probably won’t miss it, and your savings could grow faster than you expect.
Consolidate where you can. Interest can be costly, so if you are able to consolidate your credit card balances onto a line of credit at a lower interest rate, consider it. You could save money, and it’s easier to pay one bill instead of a few.
Can’t tackle your debt alone? Help is available
If you’re worried about debt, your advisor is probably the best person you can speak to. They can help you put a savings and debt repayment plan in place, consolidate debt at a lower interest rate and regain control of your finances.
Breaking bad habits can be tough, but getting your spending under control and managing your debt is an important step to a better financial outlook – and you’ll feel better too!
Discipline is what it takes to block out the noise, commitment is what it takes to walk the path to financial success and patience is what it takes to reach the goal.