Making an effort to get yourself out of debt is no small task, but it’s the right one. Debt is usually a burden that eats your income, and has an affect on how you live. With less funds available due to the need to make loan or credit payments, Canadians are often unable to live in the way you might prefer, within your means.
While there’s lots of decisions to be made about managing your debt and getting it under control, here’s some mistakes you can avoid, which might help you pay off debt sooner.
If you have outstanding debt such as a loan or two and a couple credit cards where you owe, managing and making multiple payments on time and keeping up with everything can be a challenge. One of the best ways to focus on what you owe is to consolidate your debt with a personal loan. Not only does this mean you would only have one payment date and amount to be concerned with, you might qualify for a rate that could effectively cost you less in interest. If you do not use the debt consolidation route, your next best option is to focus on the debt that might be costing you the most and work towards paying that off first. Once you have, carry on to the next.
If you’re looking to take care of debt and didn’t consider that you might need to make some changes, you are likely mistaken. In order to take the first steps to get yourself out of debt, you need to look at where the money goes, spending habits, and how you can budget your finances more effectively to pay down your debt. Overspending can also impact your debt to income ratio, which might not affect your credit score, but it is something that’s looked at when you apply for credit cards or personal loans.
One way that some manage to dig themselves deeper into debt is by continuing to use their credit cards while trying to pay off other debt. This can be a problem, and prevent you from making progress to pay off debt.
Trying to get out of debt without a budget is a bit like trying to navigate without a map. You’ll make a few wrong turns and probably get lost. If you are serious about solving your debt dilemma, you need to create a budget to help you accomplish this. In order to gain control of your finances, creating a realistic budget is a requirement. It allows you to not only see where your income goes towards housing, bills, groceries and other necessities, but how you can cut expenses, and what you can put towards paying down debt.
When trying to pay off debt, it’s important to continue paying or contributing towards other investments such as an emergency fund or your savings. It might seem to make sense that you put every dollar that isn’t spoken for with necessities to help pay off your debt, but you should continue to build your fund and savings and not let eliminating debt cut into that. As a rule of thumb, you shouldn’t stop contributing towards your emergency fund until you have at least three months of expenses covered. Continuing to build your emergency fund would create a bigger cushion that might be a worthwhile investment later.
An often overlooked but easy to do option is verifying that your credit report is correct. Not only can you quickly improve your overall credit score if you find issues, but clearing up any mistakes about delinquencies and/or balances that might hurt your credit score can also help you to qualify for personal loans with even better rates and terms in future.
The following can be useful quick tips to help with becoming debt free. It’s a process that takes time, and good money habits can help in a big way.
Create and stick with a budget – this is one area that many make the mistake of missing the mark. However, with consistency and commitment, a budget can be your best friend when trying to dig yourself out of debt.
Review what you need – take a good look around your home for ways to become frugal, from cutting subscriptions for streaming services to how you dine or commute. It isn’t a lifetime commitment, and those saved dollars can go towards paying down debt sooner.
A final tip is to leave your credit card at home and stick with using cash, or your debit card. At least until you’ve paid what you owe. Not just because using a credit card continues to add to your debt, but also because if you only spend the money you have and not credit, you are forced to work with what’s available and it will help with your budgeting as well.