How to Solve Debt Problems
Debt continues to be one of the highest sources of stress for many Canadian households. If you’re dreading looking in the mail, avoid looking at your online banking or credit card statements or worry how you’re going to make ends meet each month, you probably know how this feels.
It can seem like nothing you do is helping. Like no matter how hard you try, the situation only gets worse. Like you’re forever trapped in a marathon where for every step you take, the finish line pushes two steps further ahead.
However, it is possible to find relief. It won’t necessarily be easy or fast, but the following steps can help you build positive financial habits and help you solve your debt problems for good.
Tips for Overcoming Your Debt Problems
The simple act of acknowledging your debt problems is the first step to overcoming them. By seeking out potential solutions, you now have opportunities to reduce your stress, increase your savings and achieve the debt free life you’ve been dreaming of.
Remember, these strategies are effective – but they also require commitment, consistency, hard work and sacrifice. Consider mixing and matching several of these techniques to maximize your impact.
- Create a budget – This may seem obvious, but a budget is about more than merely planning and tracking where your money goes; it also provides a bird’s eye view of your entire financial (and debt) situation. With a budget, you can understand your most costly expenses, eliminate non-essential expenses and identify opportunities to turbocharge your debt repayment efforts.
- Stop using credit – Credit cards and lines of credit may seem essential for making ends meet during a financial crisis, however continuing to use them will only make your debt problems worse. Hide your credit cards, temporarily freeze your lines of credit, establish barriers to prevent any further credit usage until you become debt free.
- Debt snowball – This technique involves making the minimum monthly payment on each of your highest debts while contributing as much as possible to your lowest debt. Once you’ve paid one off, repeat the same process for your next lowest debt, and so on. The benefit here is the immediate reward and momentum your progress builds.
- Debt avalanche – This is similar to the debt snowball; but instead, you’ll contribute the most to your highest interest rate debt while making the minimum monthly payment on your lower interest rate debts. Between the two, the avalanche will save you more money over the long term, but your progress will initially feel slower.
- Downsize – Inventory possessions you no longer want, need or use and sell these in a garage sale or on an online marketplace. From car parts to sporting goods and furniture, you may discover the path to debt freedom (or at least a good head start) has been sitting in your storage room all along.
- Consolidate – If most of your debts are on high interest vehicles like credit cards and you have a good payment history, it may be worth speaking to your bank about a consolidation loan. This would package all your outstanding debts into a single loan, generally for a lower interest rate. However, you’ll want to be mindful to work with a reputable lender, fully understand the terms and be able to meet your monthly payment requirements.
Signs of Serious Debt Problems
Everyone’s income, expenses and debt situations are different. What may seem tolerable for one person may be completely unsustainable for another. When determining the severity of your debt problems, it’s important to look beyond how much you owe and to also consider how debt is affecting your life, relationships, day-to-day stress levels and ability to reach your personal, professional and financial goals.
The following warning signs could indicate you’re currently experiencing – or are nearing – serious debt problems:
- You’re making only the minimum monthly payments.
- You have little wiggle room in your budget after bills and debt payments.
- You’re using one credit device to make payments on another.
- You’re receiving calls and letters from creditors or collections agents.
- Your debt troubles are getting in the way of a good night’s sleep or your ability to have fun.
Get Professional Help for Debt Problems
If you’re struggling with completely unmanageable debt problems, it’s important to understand you’re not alone, you have options and help is available.
Licensed Insolvency Trustees are accredited by the federal government and specifically qualified to help you find strategies to eliminate your debt for good. They must offer a free, no obligation, confidential consultation to discuss your financial situation, goals, challenges and opportunities to become debt free. They are also the only professionals who can offer formal debt solutions under the Bankruptcy and Insolvency Act, including bankruptcies and consumer proposals.
They will discuss all possible avenues to help you eliminate your debt and help you make the best choice for your unique situation. Regardless of what path you want to take, they can offer valuable insight, recommendations and advice to help you find a permanent solution to your debt problems.
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