Dealing with debt? Here's how to face it head-on
Using simple strategies can help you reach your financial goals one payment at a time.
Nov. 03, 2023
4-minute read
If you're dealing with debt, you're not alone. With rising interest rates and inflation, many people are feeling financial pressure. An estimated 46% of Canadians are carrying non-mortgage debt, according to a recent survey from the Chartered Professional Accounts of Canada.1
Managing debt can be stressful and sometimes it might feel easier to pretend it's not there. But ignoring your bills won't make them go away. The good news is that with time, effort and a few simple tips you can take control of your finances and get rid of your debt.
Here’s how you can get started and deal with your debt head-on.
1. Understand your debt
If you want to improve your financial situation, you have to understand the details of your debt. To start, make a list of all your debts, including credit cards, student loans and car payments.
For each debt, record how much you owe, the interest rate you're paying and your minimum monthly payment. Once you have it all laid out in front of you, you can get a clearer big picture of what you need to tackle.
2. Build a budget
Having a budget provides a clear plan for your money. It allows you to keep track of how much money you have coming in and how much is going out. It can also help you reduce unnecessary spending, so you can start working towards your short and long-term financial goals.
If you’ve never created a budget before, it might seem intimidating but it doesn’t have to be complicated. Get started with an easy-to-use tool, like a budget calculator.
3. Choose a debt repayment strategy
A debt repayment strategy can help you prioritize which debts you should pay off first. Two popular strategies include the debt avalanche and snowball methods.
With the avalanche method, you focus on paying off your highest-interest debts first and work your way to the lowest-interest debt. The goal of this strategy is to pay off your debt as fast as possible while saving on interest.
Using the snowball method, you start with your smallest debt and work towards your largest debt. The benefit of this method is largely psychological. By starting with your smallest debt, you experience a win early on in the debt repayment process. This can help motivate you to keep going.
If you want to supercharge your debt repayment, consider working with an advisor. An advisor can help you create a debt repayment strategy and act as your "financial coach," supporting you throughout the process. Research has found that simply having someone to keep you accountable to your goal can improve your success rate to 95%.
4. Cut non-essentials
To boost the amount of money you have available for debt repayment, consider where you can cut spending. For instance, can you cancel any subscriptions or memberships? Can you skip restaurants and make more meals at home? Perhaps public transportation can help you save on gas and car maintenance?
When you're making cuts remember, it's not forever. You can start to add back some of your cut items once you've paid off your debt. Keep in mind that it's a short-term compromise to help you achieve your financial goals.
5. Increase your income
While many debt repayment plans focus only on what you can cut from your budget, it can also help to look for ways to increase your income. Consider starting a side hustle, like taking on freelance work or asking for a raise or promotion from your current employer . If you have a spare bedroom or a cottage, think about renting out the space. Then apply any extra income you earn to make bigger payments toward your debt.
6. Stick to your plan
To give yourself the best chance for success, make sure your debt repayment goals are realistic. While you want to pay off your debt as fast as possible, you still have to live. If you make a mistake or encounter an emergency that derails your repayment plan, adjust and keep going. It's important to remain flexible and keep your goals in focus. If your motivation fades, just think how good it will feel when you're debt-free.
7. Meet with an advisor
We understand how stressful it can be to navigate debt. But you don't have to do it alone. Our advisors can work with you to create a tailored debt repayment strategy that fits your goals and budget. We can provide the support you need to stay committed to your repayment so you can get out of debt faster.
Need some financial advice?
Book a chat with one of our advisors. They can help set you up for success, today and into the future.