Credit cards are widely regarded as a great way to build wealth because they offer low interest rates and rewards programs. Unfortunately, they also come with high fees and interest rates. If you’re carrying too much debt, now might be a good time to pay off those balances before things get worse.
Debt isn’t always bad. In some instances, it can even be beneficial. Some experts say that paying down debt early can save you thousands over the long term. Keep reading to learn how to manage your debt responsibly and start living free from financial stress.
What is the average Canadian household debt?
The average credit card debt in Canada in September 2022 was $2,121. According to other data, Canadian consumer debt has risen to $2.32 trillion, with an average debt load of almost $21,000, excluding mortgages.
These figures reflect an 8.2% increase over last year and a 6.4% increase between Q1 2022 and Q2 2022. In addition, Canadians are using credit cards more, as credit balances increased by 6.4% between the first and second quarters. 59 % of Canadians are experiencing the consequences of these interest rate hikes, and two million Canadians are expected to renew their mortgages in the next 12 months.
Why should you pay off debt?
You’ll be able to save more money
If you’re paying interest on credit card balances, student loan debt, car loans, or any other type of debt, you’re losing money every month, and even more if you’re only making the minimum payment. Interest rates can be sky-high, and even if you pay them off quickly, it will take years to get ahead.
Your credit score will improve
Your credit score is an important factor to get approved for loans or credit cards. If you have large amounts of debt that are weighing down your score, we recommend paying off creditors first before applying for new lines of credit.
You’ll feel better about yourself
Paying off debt is hard work but it feels great when the process is over. You’ll have more money in your bank account, and you won’t have any payments hanging over your head. Paying off debt can be overwhelming when you see all the numbers staring back at you from your statements each month. It can seem like an impossible task to accomplish, but, like so many other things in life, it’s easier if you break it down into smaller steps and tackle each one individually.
Debt is expensive
Paying off your debt means you’ll be paying less in interest and other fees associated with that debt. It also means you’ll save money on interest, which accumulates over time.
You can start saving money
With the extra money you’ll have after paying off debt, you can build an emergency fund or put it into a retirement account. Saving for retirement early will help you reach your retirement goals faster than if you don’t save at all.
You can buy things that interest you
By not having to pay off debt quickly, it’s easier to buy things like a car or a new home (if necessary). You’ll also have more flexibility when it comes to spending money on vacation or other fun activities for you and your family.
10 ways to get out of debt
Create a budget
A budget is a plan for spending and saving money. It is also a way to keep track of your money so you know how much you have, your current debts, and what you are spending your money on. It’s always good to ask yourself how to clear up your debt so that you can find debt repayment strategies that work for you.
Perform a balance transfer
A credit card balance transfer is a credit card transaction that involves transferring debt balances from one account to another. If done strategically, those who are paying high-interest debt can save a lot of money in interest.
Snowball method vs. avalanche method
Both are debt elimination strategies. The debt snowball method is a debt-reduction strategy in which debt is paid off in order from smallest to largest, gaining momentum as each remaining balance is eliminated. When the smallest debt is paid in full, the minimum payment you were making on that debt becomes the payment on the next smallest debt. The debt avalanche technique, on the other hand, gives priority to paying off debts with the highest interest rates.
Pay off debts with the highest interest rates
The sooner you pay off your debts or start repaying them, the less interest you will pay over time to the credit card company. If possible, pay off credit cards first because they charge higher interest rates than other types of loans or lines of credit.
Ask friends or family for help
If you’re having trouble making ends meet, consider asking for help from family or friends who can help pay some bills, monthly payments, or other expenses until you get back on your feet financially.
Reduce unnecessary expenses by selling items you no longer need
Selling items online, such as furniture, appliances, clothing, and electronics, can help you get extra money to pay off your debt faster. If you don’t want to sell your unwanted items online, there are many resale stores that also accept donations.
Cut up those credit cards
Credit cards are great for convenience, but they can be dangerous when it comes to getting out of debt because they allow you to spend money you haven’t yet earned or saved.
Stop charging everything on your cards
If you’re serious about getting out of debt, stop charging things on your credit cards. This is easier said than done. However, if can help you get your finances under control, start saving money quickly, pay off debt, and eliminate the negative impact on your credit score.
Sign up for a payment plan or debt management program, or consolidate your loans
You can sign up for a payment plan or debt management plan or you can consolidate your loans, such as your student debt, with a debt consolidation loan (which is basically taking out one loan to cover several smaller ones). If your credit score is too low to qualify for these options, consider asking family or friends if they would be willing to cosign a loan with you.
Overcome your emotions
Don’t panic. Yes, it’s easy to feel like you’re in over your head and there’s no way out, but panicking will only make things worse. Stay calm, take a deep breath, and focus on one step at a time until you get out of debt once and for all. Don’t feel shame or guilt about having credit card or loan debt. Most people get indebted at some point in their life! It’s what you learn from this experience that counts.
Debt consolidation services
Debt consolidation is the process of taking out a new loan to pay off all your debts. Although there are other options, such as debt settlement and bankruptcy, debt consolidation is an attractive alternative for those who want to keep their assets (such as your car and house) during the repayment period.
The main advantage of debt consolidation loans is that they allow you to pay off your debts faster, usually at a lower interest rate than you would pay on monthly credit card bills. All you have to do is find a reputable debt settlement company that you believe in and trust, and then buckle down and start paying off those debts.
At Refinancement Hypothécaire, we have agents who have extensive experience in debt consolidation, so we can assess your situation and create a personalized plan that works for you. You can expect to receive preferential treatment as well as long-term benefits when it comes to debt consolidation services with us. Contact us today to learn more about our debt restructuring services!