Do your debts make you feel anxious, stressed, and depressed? The way you think about how to solve your financial liabilities can be detrimental to your mental health. It is not a joke to dedicate most of your time at work to get paid, but your earnings only go toward paying off your debts.
Canadian households are now facing a problem with a total debt reaching $2.3 trillion in the second quarter of 2023. What propelled this increase was primarily the steady rise of mortgage loan debt, but non-mortgage debt also contributed secondarily.
Although the stats look unfavorable and may cause one to lose hope, those debtors who are in this financial predicament should keep their heads up. There is still a way to escape your debt problem if you only craft a strategy out of it. The tips listed in this article will help you pay off your debt and attain financial freedom.
Prioritize Which Debt to Settle First
Prioritizing is essential if you are trying to unburden yourself of multiple debts. It involves a strict observance of a strategic plan. For instance, you can prioritize making big payments on one loan before paying another loan.
If you have multiple credit card debts, you can try to settle them first with the goal of saving money each month after you get rid of them. Since credit card providers charge higher interest rates, you can get a personal loan to consolidate multiple debts. Your savings from eliminating one debt can be utilized to settle another debt.
Identify your most expensive debt and eliminate that first using a debt consolidation loan with a low-interest rate. However, if you have a poor credit score, it is difficult to get a low-interest loan, so you can make do with one of the personal loans for people with bad credit for your debt repayment plan.
Set a Budget
Budgeting is a timeless financial wisdom our good old folks have impressed on us. They believe that Creating a budget is one of the factors that pave the way to your financial health. It helps you to control your spending and save a good portion of your income. Budgeting can also be the key to opening the door to financial freedom out of your debt prison.
You can use some tools to help you set and manage your budget. Nowadays, banking apps have features that allow you to view your account and credit card statements and analyze how much money goes towards your expenses. Budgeting tools can help crunch the numbers and enlighten you on how minor, unnecessary expenses can derail your monthly budget.
If you want to put your budget in order, you should know how to track your spending habits. Prioritize your needs over your wants and make sure you have some money to set aside in the bank. Strategically plan your monthly expenses and consider whether it is conducive to your current financial situation.
You can listen to podcasts or read blog articles that provide advice on how to create a budget to help you reduce your spending and live a debt-free life.
Minimize Your Credit Card Balances
The reliance of many Canadians on credit cards usually puts them in a debt trap. Failure to pay the total balance off your credit card monthly will carry an interest rate that can grow your debt quickly. Another disadvantage is that your increasing credit card balance can negatively impact your credit score.
Allowing your credit card balance to increase can present a problem because it will be difficult to make minimum payments to the principal as the interest swells up. So, be wary of using your credit card to spend on things. Avoid unnecessary spending because having a credit card can make you a blind consumer.
Ways to Manage Your Finances to Prevent a Debt Problem
Here is a list of suggestions on how to handle your finances better and prevent yourself from owing money.
- Create an emergency fund so you do not borrow money in times of unexpected expenses.
- Maintain a good credit score because it can help you survive all aspects of your financial life, such as getting a low-interest rate loan and receiving better home or car insurance deals.
- Utilize the fruits of technological advancements in managing your finances, such as using mobile apps that track your spending habits and provide financial insights on how to pay off multiple debts.
Having multiple debts is not a joke, but do not think it is the end of the world if you have a debt problem because there are ways to escape it. All you need to do is prioritize which debt to pay first and track your spending habits to avoid depleting your earnings on unnecessary stuff. Also, get advice from a financial advisor to create a debt repayment plan.