It’s time to pay off your debts
If you are Canadian, then retail stores, credit card companies and banks love you. They all want you to buy their goods and use their services.
They want you to spend money each and every day.
As the saying goes, money makes the world go round.
But, some people believe it is credit that makes the world go round.
Retailers and financial service providers want you to purchase goods and services.
They want consumers to believe continued spending is the solution for strengthening and maintaining the Canadian economy.
Debt is what happens when consumers. that means you and I, spend too much money on a regular basis.
More precisely, it means spending more than you earn.
However, not just reckless spenders are in debt.
Simply spending more than you earn creates debt. It also quickly becomes a vicious circle. The more you spend, the higher the debt; the higher the debt, the harder it is to stop spending.
Do you have unpaid credit card debts or a line of credit that just doesn’t seem to disappear?
Are you constantly worried about paying the next months’ rent, or cellphone bill or the minimum payment due on your credit card? There are solutions. One is very simple, but not so easy to implement.
You must spend less money than you earn now, tomorrow, next month and next year.
Beating down your current debt load requires all your determination and willpower.
The sooner you tackle your debt, the sooner your financial picture improves and the better you feel.
The stress of being in debt can be eliminated. Create a spending plan Before you can take steps to reduce your debt, you need to know how much money you have.
Add up all your expenses for the month and subtract it from your monthly takehome income.
This is the amount of extra money you have to pay down your debts.
If you don’t have anything left over, then you are spending more than you earn.
In this case you will need to reduce your spending, sell some of your assets to pay down debt or increase your income. Examine your credit cards Take all your credit cards out of your wallet.
Select the one card with the lowest interest rate and transfer a high interest credit card amount to this card.
Don’t pay off a card with 10 per cent interest rate when you have another card with a balance attracting 18 per cent or more interest.
Once that is paid down, go onto the next one until you are able to pay off the entire balance owing each month. Stop using your credit cards That’s right, use cash. Every time you want to buy something or eat out at a restaurant you need to take bills out of your wallet to make the purchase.
It is much harder to spend cash dollars than to simply bring out your credit card.
Studies have shown when we use cash, we spend at least 15 per cent less than when we use credit. Cash out some savings No one likes to take their non-registered savings or TFSA and put it against debt. But, sometimes it is the best thing to do. When you are paying interest to someone else at 18 per cent or more, your savings or investments will need to earn way more than 18 per cent to equal the outflow of after-tax dollars.
It is doubtful your savings are currently earning that rate of return.
The higher the interest rate on your debt, the more attractive it is to repay debt rather than invest. Change your mindset If you are currently relying on credit to get by each month, then it is much harder to get out of debt.
To get your finances on the right track, learn to live on your own money and not someone else’s.
When you use a credit card, you are using someone else’s money.
Credit cards are OK if you pay off the outstanding balance each month. Getting out of debt is not an easy task. It is much harder work than getting into debt in the first place.
But reducing debt is the best and fastest way to improve your financial and mental health.