Good Debt Advice
No matter how much debt you carry, or how much money you make, there are a few principles and practices that you should employ to keep your debt load under control.
“Paying debt down and staying debt-free requires a strategy, a shift in mindset and a daily commitment to keeping debt at a minimum,” says Jeff Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada.
Here is some good debt advice to help you manage your credit wisely and stay financially healthy.
Make a budget
Hands down, the best thing that you can do to manage your debt and achieve your financial goals is to have a budget. Whether you make a lot of money or a little bit of money, establishing and living by a monthly household budget helps you to have a framework for your spending.
Having a budget also helps you to identify areas for improvement if you feel like you aren’t meeting your financial goals.
Spend less than you make
A lot of people get into debt trouble by using credit as a way of extending their household spending power. Unfortunately, this eventually catches up with you as the debt pile grows. As a rule, spend less money than you make.
This attitude just doesn’t apply to staying within your budget for everyday purchases. Commit to spending far less than you make when shopping for things like a house or a car. You should leave a lot of wiggle room in your budget for these major purchases. Never max out your mortgage or buy more car than you can reasonably afford.
Check your credit report
It’s a good idea to check your credit report now and then. Errors do happen, and you are well advised to take care of them sooner rather than later.
Also, if you’ve had issues with credit in the past, checking your credit report will let you know where you stand and help you determine a timeline to work at restoring your credit.
The best way to avoid a debt problem is to not accumulate it in the first place. Accomplish this by living a cash-only lifestyle. It is ok to use credit, but only charge items that you intend to pay off every month.
When considering other debt, like mortgages and loans, keep your debt low by putting more cash down. The less you owe the better.
Have a goal
Financial success isn’t just for the wealthy; financial success is achieved by people who state their goals and then develop a plan to get there. It may seem obvious to state your goal, but it needs to be specific and measurable. It’s also a good idea to have short, medium and long-term goals.
Plan for emergencies
Nothing can derail your finances like unexpected expenses. Commonly, people are forced to take on debt just to cover expenses in the face of a life event, like job loss, illness or injury, death or divorce. This is the kind of debt that can be hard to come out from under as well.
To reduce this financial risk, include savings in your monthly budget and make sure that you have a healthy amount of cash to draw on in the case of an emergency.
Be a bargain shopper
Consumers have a lot of choices, which means that you should always consider if you are getting the best deal when you are buying something. It can help to have a general idea what items cost so that you can spot a deal.
Also get in the habit of meal planning, bulk buying, couponing and price matching. This can help stretch your monthly budget, avoiding the need to turn to debt.
Pay more than the minimum
If you only make the bare minimum payment on your credit card, it will take years and years to pay off your debt. This is because your payment is comprised of both principal and interest, but the majority of it goes towards interest.
If you are serious about eliminating your debt, always make more than the minimum payment. Never, ever draw on credit cards to pay other credit card payments.
Ask for debt help
If you are struggling to pay your debts, realize that the sooner that you decide to take control, the sooner you’ll be on the path towards financial security. There are a number of options available to you to pay down your debt. Do you know what they are?
If you’ve got debt, but are able to make payments on your own, you could either pick one card at a time and pay it down aggressively, moving on to the next one. You could also consolidate your debts (either on your own with a balance transfer or through debt consolidation loan from your bank). This lets you combine your payments into one, which will erase your debt more quickly.
If you are behind but are still able to make payments, you might consider a debt management program (DMP), where an accredited credit counselling agency acts on your behalf with creditors to negotiate interest rates and a payment plan.
For those people more seriously in debt and unable to pay back what they owe, other debt repayment options include a consumer proposal or declaring bankruptcy.
“The good debt advice here is to ask for help and to consult professionals to help you determine what the right course of action for you is. Debt options are largely personal, based on an individual’s financial circumstances, so it’s wise to discuss your options with a financial professional that you trust,” says Schwartz.
This workbook is designed for middle and high school students to help them establish a foundation for a lifetime of financial responsibility by teaching about budgeting concepts, opportunity losses, wise use of money and the importance of saving money.