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According to the government of Canada website, in 2019 over 70% of Canadians found themselves in debt. The most common type of debt reported was a mortgage on a primary residence but many others reported having outstanding credit card, vehicle or student loan debt as well.
When debt is incurred, you are essentially borrowing money from your future income and therefore reducing your future standard of living. By minimizing the amount of debt that you owe, you will be better able to save for the future and will ensure that you are able to provide all of the necessities for both yourself and your family.
While getting out of debt may seem impossible, with a little bit of organization, some determination and some extra work, getting out of debt is something that anyone can accomplish. Some proven methods to help reduce your debt include:
Know what you owe
Often people don’t have a good understanding of how much money they are spending a month. Make a list of all of your debts, what the monthly minimum payments are, what your other expenses are and how much money you are earning a month. Compiling this data will give you a better understanding of where you are overspending and ways that you can save.
Create a budget
Once you have determined exactly what you owe and what your spending habits are, create a monthly budget and follow it. Determine at the start of each month where you will need to allocate your income and don’t stray from this plan.
Pay off more than your minimum monthly payments
If you want to get ahead and really start paying down your debt, then you will have to pay off more than the minimum amount required each month. This will reduce your debt faster and also lessen the amount that you have to pay in interest each month.
Reduce your spending habits
Looking for ways to reduce the amount of money that you spend each month is an excellent way to minimize the amount of debt that you are accumulating and it will allow you to have extra money left over at the end of the month to put towards debt repayment.
Earn extra income
Increasing the amount of money that you earn each month can go a long way towards paying down your debt. Working overtime hours, obtaining an extra part-time job or putting your skills to work as a freelancer are all excellent ways to increase your earnings.
Look for a lower interest rate
Reducing the amount of interest that you have to pay on credit cards and loans will allow you to pay off more of your debt, reducing the amount that you owe much faster. Sometimes, by contacting your credit card company, you may be able to negotiate a lower interest rate. You can also look into opening a balance transfer card which will offer a very low interest rate for a limited time and will allow you to transfer your existing balance to the new card, reaping the benefits of the low rate and giving you the opportunity to pay off your debt faster.
A credit score is a three-digit number that is calculated by credit bureaus and lenders that represents how much debt you have, how well you manage your credit and if you are considered high or low risk to other lenders based on your history.
Credit scores are usually broken down into these three categories:
There are many different factors that may affect your credit score such as:
Making steps to improve your credit score will help you when applying for future loans. Your credit score can be improved by minimizing your debt, making all of your payments on time and not applying for any new credit cards or loans.
Yes. It is highly recommended that you check your credit report once a year to check for any signs of fraud or identity theft. This will show if anyone has used your identity to attempt to open up a new credit card or to apply for a loan.
No. Your credit score will not be impacted if you check it. Checking your credit score regularly will allow you to keep track of your debt and will help to prevent identity theft and fraud. When you apply for a loan or a credit card, the financing company will need to check your credit rating and each of these third-party checks may negatively impact your score.
In some situations, yes. Filing for bankruptcy will erase all of your debts and it could be a good choice for someone who has looked into all other options and is unable to repay their debts utilizing another method. Bankruptcy can have long-term implications and may affect things like your credit score and possibly your job. Bankruptcy should only be used as a last resort and after you have received full counsel from a knowledgeable financial planner or bankruptcy specialist.
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