5 Effective Debt Relief Tips When You're Drowning in the Red

By Joel Morris - 2016-07-03

Not only are provinces and municipalities racking up unsustainable debts, Canadian consumers and households are as well. And the latter is something that has been warned about for years.

According to data from Statistics Canada, the debt-to-disposable income ratio was 165.3 percent in the first quarter of 2016. This means Canadians owe $1.65 in debt for every dollar of disposable income they have, which is dangerously close to an all-time high.

Many governments and households tend to believe that they can handle their debt loads because of record low interest rates from the Bank of Canada (BoC). However, this is the wrong attitude to have. Artificially low interest rates can benefit you for things like mortgages, but when it comes to consumer debt, such as credit cards or lines of credit, the central bank won't help you.

There are so many Canadians, from British Columbia to Nova Scota, that are just drowning in debt. The only colour they see is red, and when rates to do go up then their debt servicing payments will go through the roof. You have to tackle your debt troubles today.

Need help? Here are five effective debt relief tips when you're drowning in the red:

The Snowball Effect

The debt snowball effect is likely one of the most successful debt relief strategies out there. The method is entirely up to you: you can tackle the smallest loans first, you can pay the credit cards with the highest interest rates first or you can pay off the biggest sum. Whatever you choose is up to you. Why this works is because you're defeating one debt snowball at a time. It's all about psychology!

Get a Second Job or Gig

If you're finding that you don't have too much money at the end of the month to pay off the debt then perhaps get a second job or a side gig. These funds would be exclusively for your debt repayments. Whether it's working 15 extra hours a week in the evenings or it's tackling freelance projects in your spare time, all of your extra earnings must be allocated to your debts.

Spend Less Than You Plan to Spend

It's always great to have a budget! This is the first step towards fiscal prudence and responsibility. With that being said, you should always spend less than you plan to spend. For instance, if you have a weekly grocery budget of $125 then you should try your hardest to spend just $100. The saved money should be put towards your debt at the end of the month.

Hold Meetings & Have Constant Reminders

Each month, you should have a sit down meeting with your family and talk about your debt. This meeting should consist of updates (how much you've cut down on your debt thus far), how much money the family has saved over the last 30 days and what ideas they may have to pay down the debt even faster. The meetings should be constructive and helpful in the end.

Moreover, since debt relief seems like an eternal struggle and takes a lot of discipline, you should have constant reminders scattered everywhere. On your computer, on your phone, on the refrigerator and wherever else should have reminders about how much you need to pay on a specific date, how much debt you have left to pay and how much you've saved.

Find Your Frugal Friends

Like anything else in life, it's always good to have support. In the case of your path to debt reduction, it's a good idea to find people in a similar predicament, who can share their own tips and struggles to help you and not make you feel isolated in this plight. Also, try to find friends who are frugal, which usually means they won't go to the bar every night or go to an expensive restaurant every week. When you do find frugal friends, it's a whole lot easier in the end.

Here are a few other tips you should take advantage of:

  • If possible, refinance your mortgage to get a better rate to find savings.
  • Sell all of the stuff and belongings that you don't need at a garage sale or on Craigslist.
  • Don't upgrade your lifestyle when you get a pay increase; maintain the status quo.
  • Never, ever try to keep up with the Joneses; you'll only get into trouble.
  • Always read the fine print when it has to do with your money.
  • Consult with a debt relief specialist like Credit Counselling Services of Atlantic Canada for more options.

The path to debt relief and financial freedom is a long, tiresome one. Indeed, the journey of a thousand kilometers begins with one step, but it can feel like each step you take is accompanied by a bag of bricks. Never relent. You can pay off your debt and you can feel relieved by being debt-free once that final dollar or penny is paid off. Good luck on your journey!

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