Have a plan to pay down debt
November 5, 2018
By Jane Rooney, Canada’s Financial Literacy Leader
Many Canadians are weighed down by too much household debt. Debt can create financial stress and weaken our resilience to economic surprises. It isn’t always easy to live within your means. But sometimes, financial challenges can lead us to find a new way of managing our finances - starting with a plan to pay down debt.
There are many benefits to taking control of your debt situation, including being more likely to be able to handle unexpected expenses and to be on track for your financial goals, such as retirement. The additional benefits include being sheltered from financial ups and downs, greater financial well-being, and having the financial freedom to do the things you want to do.
But how do you start?
The first step to tackling debt is to identify what you owe.
Create a list of debts, and identify which loans have the highest interest rates, and the minimum monthly payment each loan requires.
Step two is to create a budget.
A budget is a key tool of any plan to take charge of your finances. It will help you figure out how much money is coming in, how much is being spent, and how much is being saved. It will also allow you to balance your income with your regular expenses, and reach your financial goals, such as paying down debt.
Don’t know how to make a budget? FCAC’s online Budget Calculator is a great tool.
Review your budget to make sure you include your debt payments in your regular expenses. You should aim to pay off debts with high interest rates first. The advantage of doing this is that you will pay less interest in the long run, and can become debt-free sooner.
The next step is to live within your means.
It isn’t always easy, but it is the best way to avoid excessive debt. Part of living within your means is understanding the credit products you use. Choose a credit card that suits your lifestyle and spending habits. You can use FCAC’s popular Credit Card Comparison Tool to compare the cost and terms of different credit cards. Be sure to make at least your minimum payments every month. Pay as much of your balance as you can afford to avoid high interest costs.
As a final step, order your credit report.
All consumers have the right to order a free copy of their credit report. FCAC recommends you check this report at least once a year, correct any errors you find, and check to make sure there are no loans or credit products that you haven’t authorized. The other people who can see this important information are lenders when you try to get a loan, as well as potential landlords, employers and insurers. That’s why it’s so important to monitor your credit report and make sure you stay on top of paying down debt.
Remember that having a plan to pay off debt will go a long way to reducing your financial stress. Your plan should include making a budget, paying down existing debt, and building an emergency fund so you don’t go back into debt when the unexpected happens. Financial challenges can be an opportunity to find the help you need to get out of debt, choose the right financial products and services, and start saving for the future.
Visit our Financial Literacy Month website and follow us on social media to learn more.
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