Did you know?
Is there something more comfortable and more fun than getting into debt? That's a huge no! However, getting out of it is no doubt painful. When you realize that it is getting out of control, you're already down to tens of thousands of dollars.
A common way to measure household debt is to compare it with the amount of disposable income people have. In Canada’s case, household debt is around 170 percent of disposable income. In other words, the average Canadian owes about $1.70 for every dollar of income he or she earns per year, after taxes.
If we specifically talk about debt in Canada, HELOCs debt has considerably increased since 2017 as compared to a residential mortgage. In 2017, HELOCs debt summed up to C$243 billion. That's huge!
One can be indebted to tens of thousands of dollars within months, but paying it back can take more than just 2-3 years. If you're feeling the same, we've got just the right solution to reduce or at least ease your debt.
Five Easy Ways to Reduce Debt for Canadians
Our latest blog post will give you some debt reducing strategies, and you will learn how to reduce debt on your loan and credit cards.
Here are some strategies to reduce debt:
Here are five legit ways to reduce your debt without putting much strain both on your pocket and mind.
1. Stop Borrowing More Money
If you're still borrowing money after realizing your financial situations, you won't get out of the debt. Therefore, it is recommended to stop borrowing more money to make both ends meet. Though this doesn't help your current situation, it will not make things worse. You can either freeze your credit or abandon credit cards to reduce the temptation to spend more.
2. Pay More Every Month
If you're only paying a little out of your income everything, you won't get out of this burden anytime soon. Would you want to pay double or triple of your actual debt? No, right? This reason is why it is recommended to increase your monthly payment as much as you can. Make sure to check with your advisor about the maximum amount allowable as there could be penalties associated with paying off your loan prematurely.
3. Make Use of a Consolidation Loan
If you have taken loans from several sources, it is best to group all those loans into a no-interest loan. However, this only works if you stop borrowing more money and stick to paying the consolidation loan till the end. Make sure to compare a few options and choose the best financial opportunity with the help of an expert or financial advisor.
This strategy will allow lowering your monthly payments, and it will enable a more relaxed approach to reducing your debt.
4. Use Your Retirement Fund
If you can't manage to reduce your debt following those mentioned above, you may consider withdrawing from your retirement fund. This debt reducing strategy only applies if you're 60 or above; otherwise, you'll face additional tax liabilities and some early withdrawal penalties too.
Withdrawing from your retirement fund is too risky as you'll still have to pay for the loan if you're on the job.
5. Use your TFSA and RRSP
You can also use the cash on hand and save it in a tax-free savings account or an RRSP. Again, make sure to consult an advisor or expert and check if there are any tax consequences.
BONUS: If you have paid off all your loans. 5 Easy Tips to Save Money in 2021.
If you have paid of all of your loans then look for lucrative investment opportunities to increase your wealth and your net worth. Investing is made so easy with all of the new tools, apps, personal finance blogs and information available to us.
You can either invest in a safe or lower return investment or go for the riskier investments that could have a potential for a higher return. If you're debt free - then go ahead and make the most of your money!
If you do not want to pursue investment opportunities then you should save your money. Here are some easy tips to help save you money in 2021. Knowing how to save maximum money is very important. Here are some tips on how to save yourself from debts sand maximize savings.
- Don’t purchase special services
Many, shopping outlets, companies and banks offer many services like protection from fraud, an SMS alert system and many more. Subscribing for these services is not useful for you because these are overpriced. You should not go for these services since these are useless.
It is very important to keep the track record of your purchases. Keeping the purchase record helps in managing the debt and keep a check on your charges. When you feel like you are spending too much on something, limit the usage.
Purchase record ensures that you are safe from the frauds, and no one else is using your card for unauthorized. If you see any unauthorized usage contact your credit card company as soon as possible to receive protection from liability when it occurs.
- Avoid cash advances
Taking cash advances from the loan companies or credit cards is unwise. It’ll result in an increased transaction fee, interest rate as well as no grace period. If you are going to loan companies or online loans, then it can be a burden on your pocket all the time. You have to pay an extra amount on your loans.
- Don’t overspend on food and shopping online
It is better to pay with cash. In this way, you will not take debt or borrow money. Paying extra for disposable items or food, or shopping via credit cards is not a wise decision.
- Don’t buy what you can’t afford
Living beyond your means is one of the reasons to run out of cash in the middle of the month. Buying items, for which you have to borrow money, or going for debts, is not good. Do not go beyond your sources and overspend on buying things. If you are unable to pay for something with cash, don’t buy it. Because at the end of the month you have to pay the balance.
- Create a budget
Instead of relying on the card company's limit, you can avoid debt by creating your budget yourself. This will help you avoid credit card debt and the budget will also be based on your money in the bank.
Do you have credit cards? Use a credit card only for emergency. Most of the people prefer paying for services using a card which results in more charges for services.
It is recommended to use cards only in case of emergency as you cannot escape debt in that case, but you need to use the card, so, it’s fine at that time. But make sure you have already planned for paying the debts when the card is used in an emergency.
So, what works for you out of all the options explained above? If you're continually delaying your quest to reduce debt until the next pay, you're doing it wrong.
There can be times when repayment is nearly impossible, and thereby, it is recommended to save little-by-little from tackling the unexpected. The best approach is to reduce your debt before investing in stocks, bonds and real estate.
Stay tuned for our upcoming blog post with three additional strategies that will help you lower your debt. These tips will be day-to-day changes that you can make to your life to reduce spending and increase savings.
Please comment below with your strategy to reduce debt and any other successful attempts that you've made towards reducing debt. We hope this article is helpful to you, and one or two of these tips will be beneficial in your daily life.
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Disclaimer: The information contained herein is not intended to be a source of advice or credit analysis with respect to the material presented, and the information and/or documents contained in this website do not constitute investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
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