January is the month most Canadians dread. It’s not because we will have to wait ages before we see any statutory work holidays or the fact that we will be shivering and shovelling into the spring that never seems to arrive. Oh no. It’s because soon enough we get our January credit card statements and the reality of the situation sinks in.
According to a new poll conducted by the CIBC, paying down debt is the top financial goal of most Canadians in 2016. But many have difficulty achieving this goal due to rising household debt levels coupled with the struggle to keep up with normal household expenses. Everything seems to cost more and there is less and less disposable income available to pay down debt.
Dieting may be your number 1 resolution in 2016 but why not put your debt also on a diet? It can be done with a few simple tips.
Face the Truth
Gather the bills and determine exactly how much you owe. You would be surprised how many people have no clue how much they spent on the holidays and what balance they currently are carrying. Be aware when payments are due and what interest rate you are being charged.
Make a Plan
Know your exact income bi-weekly or monthly. Determine what essential expenses must be paid each month such as rent, mortgage, car payment, utilities and insurances. Estimate your flexible expenses such as groceries, meals out and entertainment. The money left over each pay period AFTER the expenses are paid can be used to pay down debt. If nothing is left over, rework expenses. If paying down debt is a priority, you may have to go without certain luxuries.
Pay Debt First
If you follow the spending plan you created, you’ll cover your expenses will be paid and have some left to put towards debt each pay period. The day you get paid, before you use any money, pay the debt payment immediately on your debts. If you wait until all household bills and expenses get paid, most likely you will have nothing left over to pay debt. You’ll have to make sacrifices, but you’ll make progress on your debt
Stop the Bleed
Stop using the cards. If you don’t stop racking up debt you will never make any progress paying them off. Take the cards out of your wallet until paid in full. Out of sight will stop impulse buying. Treat credit as debt not income.
Small Balances vs High Interest
Some consumers prefer to pay off small balance cards first to see progress quickly. Others focus on the highest interest cards to save the most money in the long run. Do whichever you prefer, as long as you’re making progress.
Sacrifice is Key
It would be great to use that bonus or income tax refund to beat the cold and head down south for some R & R. On the other hand, the bills will still be here when you come back. Ignoring the problem will not make it go away. Make rational business decisions. Use any extra cash to pay the debts off quicker. Create extra cash from working overtime hours, taking on a second job or selling unused items. The faster you pay off debt the sooner you will be enjoying the extra money in your wallet.
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