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Destroy debt before it destroys you

By Jennifer Thompson

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December 2, 2020

Destroy debt before it destroys you. Uncontrolled debt destroys lives. It destroys dreams and it destroys individual lives. Consumer debt in Canada topped $2 trillion. This is according to Equifax Canada’s latest quarterly report. So what does this mean? The average Canadian household owes $1.77 for every dollar of disposable income earned!

This level of debt is keeping Canadians worried at night. Financial Planning Canada conducted a survey in May. And found that almost half (49%) of Canadians have lost sleep due to financial stress.

 

Jennifer Thompson Dealing with Debt

 

The situation was not much better before the pandemic. Scotiabank commissioned a Financial Worry poll at the end of 2019. Canadians spend an average of two hours a day worrying about finances.

Debt levels are just as alarming south of the border. The Federal Reserve Bank of New York reported total household debt at a record of $14.35 trillion.

Owing that much debt can leave a family in a vulnerable position. Imagine what would happen if one of the breadwinners was to lose their jobs or become disabled. For many Americans debt is a cause of major stress in their lives.

 

 

Even if you do have good health and job security, dealing with a high level of debt is stressful. Debt can affect your significant relationships. Conflicts over money are cited as one of the main reasons couples separate.

Debt hinders you from achieving your goals. It may mean postponing your retirement. Debt robs you of your freedom. Keeping you stuck in a dead-end job or in an abusive relationship. How much of your income is currently used to service debt?

 

What can you do to destroy debt?

● Decide that you want to pay off your debt! Make that a priority.

●Target one credit card, loan, or line of credit — the one with the highest interest. And pay that off first.

● Ask your creditors for lower interest rates & transfer your balance (cautiously).

● Make two payments each month instead of one.

● Stop using your credit card.

● Seek credit counseling.

● Consolidate debt into one with a lower interest.

● Buy what you need, not what you want because what you want is to be free of the burden of debt.

● Trim one expense each day.

How can you avoid getting into debt?

Jennifer Thompson

Know where your money is going!

Jennifer Thompson Compelling 365

Keep good records of your expenses, savings, and investments. There are numerous apps available for this. Digit, Mint, and YNAB are some popular ones you can download. How often have people canceled their gym membership? Only to discover a year later that the gym never stopped debiting their bank accounts?

Regularly check bank and credit card statements to ensure that there are no mistakes or evidence of fraud. Knowing where your money is going is also a helpful way of stopping the ‘leakages.’ Leakages such as fees that can be avoided or reduced.

Look at your credit card and bank statements over the last six months. What part of your income goes to necessities? How much do you spend on compulsive shopping?

Set a Budget and stick to it

 

Jennifer Thompson

 

There are two approaches to this. One is to decide on the kind of life you want and how much it will cost to maintain that lifestyle and then making enough money to pay for it. The second idea is to look at how much you earn and pairing your lifestyle to your income.

Much like dieting, budgeting does not work for everyone. I have seen it work with some people and not with others. The right tools and mindset can make it an effective way to avoid and eliminate debt.

A good budget starts with the 50, 30, and 20 rule. 50% on necessities like housing costs and food. 30% on non-essentials such as eating out, subscriptions, and your phone plan. 20% should be saved.

Be intentional about your money

Manage your money in alignment with your goals and your values? E.g. do you spend more on entertainment than you want to? If you value financial security, do you save a part of your income? Or are you living from paycheck to paycheck?

Pay Yourself First

 

Jennifer M Thompson

 

The best way to avoid debt and build wealth is to pay yourself first. You don’t miss what you don’t see. Set things up with your bank to transfer a part of your income to a savings account every time you get paid. If you are paid interest on your savings, this can add up over time. This is called compounding.

Pay off credit card debt every month

Jennifer Thompson Dealing with Debt

The power of compounding works both ways — for building wealth as well as accumulating debt! If you are not in the habit of paying off the balance on your revolving debt, the high interest on it ensures you end up paying two or three times what you originally owed.

You only need one or two credit cards at the most. Are you in the habit of using credit cards and leaving a balance owing each month? This is one of the most dangerous ways to get into a spiral of debt. Especially store credit cards that have a high interest. Some of these are as high as 29%. Pay off and cut up extra credit cards.

Cut down on compulsive shopping

Jennifer Thompson

 

Do you spend on things you need or on things you want? Are you an emotional spender?  Shopping when you are depressed or lonely. Before spending, ask yourself, “Does this get me closer to the life I want?”

Set financial goals

Set financial goals for yourself. 3, 5, and 10-year goals. You are more likely to commit to a savings plan if you have a reason to save. Write these goals down and decide how much you would be willing to contribute each month towards achieving each of these goals.

Check your credit report

Dealing with Debt

 

When was the last time you checked your credit report? Do you know your credit score? Your credit score affects the interest rate you are charged for credit. A low score makes you a higher credit risk to lenders. This, in turn, translates into you paying a higher interest rate for loans and mortgages.

If your credit is bad, get credit counseling to repair it.

Build an Emergency Fund

Life happens even to the best of us. Everyone should have saved up enough money up to about 3 to 6 months’ income to deal with emergencies like car repairs, job loss, or short-term illness. Instead of using your line of credit or credit card to pay for an emergency.

 

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This money should be in a savings account and not in the stock market! A savings account has no volatility but the stock market does. You don’t want to have to access the money for an emergency and see that your principal has dropped in value.

Summary

Carrying large amounts of debt can be debilitating. Job loss or illness is stressful for a family. Not being able to pay your creditors adds to this stress. Start the new year on a clean slate. Be intentional about reducing or eliminating your debt. Seek help from a financial professional. Someone who can provide advice on how to consolidate your existing debt. And teach you strategies to become debt-free. You owe it to yourself and to your family.

 

This article contains affiliate links. I may receive a commission if you decided to purchase from the products or services that are linked.

 

Jennifer Thompson

A creative strategist with a background in finance, Jennifer helps people and businesses manifest abundance. You can reach her at jenniferthompson@compelling365.com

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