I was kindly invited as a guest on CTV’s Canada AM this morning to discuss tips for Canadians dealing with debt.
Here are RateSupermarket.ca’s Top Tips for Dealing With Debt:
1 .Set a budget
The first step is to get a handle on how much debt you have. Find those credit card and loan statements to get an idea of the outstanding balances and the interest rates each of them are charging. This will help you get an understanding of how much you owe and will make it much easier to set a budget.
A few tips to set a budget include:
- Review your total after tax income
- Breakdown and analyze what your spending your money on each month
- Try and cut out any unnecessary costs and stop impulse purchases when you’re out grocery shopping or at the mall
- This will give you a good idea how much you have left over at the end of the month to put towards paying off your debt
- Or the monthly shortfall, where it’s back to the drawing board and trying to reduce costs even more
- There are fantastic free budgeting tools out there to help you like Mint.com
Once you have a budget you’re in a great position to put a plan in place to begin reducing your debt.
2. Tackle highest interest debt first
A great place to start tackling your debt is to begin with those charging you the highest interest, which is typically your credit cards. They charge huge amounts of interest, up to 29%, and can take years to pay off if you only pay the minimum amount.
Did you know that if you have a $1,000 credit card balance and only made the minimum payment each month, it would take you almost 10 years to pay it off! You’d also end up paying over $1,000 interest! So try and avoid paying only the minimum amounts each month if you can.
3. Review biggest debt
The next step would be to review your biggest debt which for many Canadians is your mortgage. With all the excitement that comes with buying a property and turning it into your dream home, many people are happy to not think about their mortgage again. It’s easy to view it as a monthly expense, rather than a large debt that should be actively managed to try and pay down as quickly as possible.
A few quick wins to reduce your mortgage debt include making sure you compare mortgage rates before you purchase or refinance, move to accelerated payments and take advantage of your mortgage lenders prepayment options. These steps can reduce the number of years and interest you’ll pay over the life of your mortgage. Visit our Learn section to find out more details on how to pay off your mortgage faster.
4. Be a smart shopper
It’s a very competitive market and there are many companies competing for your business other than your current bank or credit union. If you’re looking to renew or refinance your mortgage, or shopping for a new credit card, be sure to compare the market and find the best offers.
Take advantage of some of the great offers to save money. For example, if you have credit card debt, why not take advantage of a low balance transfer credit card? We’ve found a 0% balance transfer credit card from MBNA that enables you to move an outstanding balance from another card and pay 0% interest for 10 months. During this initial period all payments go towards the balance rather than interest. Please note that the interest rate jumps to 19.99% after the 10 month period, so it’s important to take advantage of the low rate right from the start.
5. Get expert advice
If you’d like help managing your debt, you can always consult a financial planner or adviser. There are also credit counseling agencies you can speak to, and many are not for profit organizations, that specialize in helping people manage their debt. A quick online search can help find a local credit councilor near you.
These tips can help you start dealing with your debt in 2012 and begin building your savings for the future.