Limiting future debt

From: Financial Consumer Agency of Canada

Making a budget and sticking to it

Making a budget helps you track your income, savings and expenses. This helps you manage your finances responsibly. It also helps you balance your debt to your income and prioritize your spending.

By sticking to your budget, you avoid spending more than you earn. This may help prevent you from accumulating debt.

A budget also helps you plan for future expenses and save for emergencies. This reduces the need to borrow money and pay interest.

Learn how to make a budget.

Setting financial goals

Setting financial goals helps you plan your spending and saving. This may help you limit and reduce future debt by preventing overspending.

Your financial goals may include savings and investment goals for:

your or your child’s education
a new car
a down payment for a home
your retirement
a vacation

Learn how to set savings and investment goals.

Automate your savings

Automating your savings may help you reach your financial goals by making saving a habit. You put aside part of your income regularly without having to think about it. This reduces the temptation to spend that money and helps you build your savings over time.

To set up automatic savings, choose an amount, date and frequency. Then, set up automatic transfers from your chequing account to your savings or investment account. You may set up your automatic transfers to take place on your paydays.

Check with your financial institution to set up automatic transfers.

Learn more about savings accounts.

Setting up an emergency fund

An emergency fund is money you set aside to pay for unexpected expenses.

It helps you avoid getting into debt if you face unexpected expenses like:

car repairs
an urgent visit to the veterinarian
a job loss
home repairs
health problems that prevent you from working

Ideally, you should try to save the equivalent of 3 to 6 months of your regular expenses. You may also aim to save 3 to 6 months of income. Both methods work. Choose the one that better meets your needs

Learn how to set up an emergency fund.

Preventing additional debt

Consider all your options before borrowing money. Some credit products are more expensive than others.

Learn more about choosing financial products and services that are right for you.

If you must borrow money, make sure you understand the costs. Only borrow the amount you need.

Learn more about what to consider before borrowing money.

Use your credit responsibly

Using your credit responsibly helps you avoid additional debt by borrowing only what you can repay. Examples of credit include your credit cards and lines of credit.

Only use credit for purchases you can pay in full each month. Avoid carrying a balance on your credit card to prevent paying interest.

Learn how to use your credit card responsibly.

Use electronic alerts

Electronic alerts from your financial institution may help you manage your finances and avoid fees. Pay close attention to them.

Your financial institution may send an alert when:

your chequing or savings account balance falls below a certain amount
the credit available on your credit card or line of credit falls below a certain amount

Learn more about electronic alerts.

Reducing expenses

Reducing your expenses helps you increase your savings and contribute to your financial goals.

Reduce bills

Save on electricity, water, and heating bills by being more energy efficient. Turn off lights when not in use, fix leaks, and use programmable thermostats. Consider making energy efficiency upgrades to help lower your energy consumption, energy bills and add value to your home.

Learn more about energy efficiency for homes.

Review your phone, internet, cable and streaming services to make sure they meet your needs. Cancel unused services or switch to more affordable options. You might find cheaper plans or bundles that better meet your needs. You may also be able to negotiate a lower price with your service provider.

Learn how to pick the best cell phone plan.

Reduce banking fees

Review your bank account to make sure its features meet your needs. Check for unnecessary fees like maintenance, overdraft and automatic teller machine (ATM) fees.

You may reduce some of your expenses by:

maintaining a minimum balance to waive account fees
using the ATMs of your financial institution to avoid paying a fee for withdrawals made at another institution’s ATM
opting for electronic statements if your financial institution charges for paper statements
switching to an account that better meets your needs

Learn more about saving money on banking fees.

Cut unnecessary spending

Cutting down on unnecessary spending daily may go a long way.

Examples of ways to save money by cutting unnecessary spending include:

taking public transit, carpooling, or biking instead of driving your car and paying for parking
cooking at home and bringing your lunch to work instead of eating out
making your coffee at home instead of buying it
cancelling unused subscriptions

Avoid impulse purchases

When you buy things on impulse, you might spend money you don’t have. Over time, these small, unplanned expenses add up.

Avoiding impulse purchases helps you stay within your budget and reduce your debt.

To help you avoid impulse purchases, you may implement a waiting period. For example, you may want to wait 24 hours before making some purchases. This may help you determine if you need the item and prevent unnecessary spending.

Make informed purchases

Finding the best prices on the items you need may help you reduce your expenses.

You may wish to:

look for sales
use coupons
buy in bulk when possible
consider generic brands instead of brand names
use price tracking applications and price matching

Learn more about money-saving tools, websites and applications.

Maintain your assets

Maintaining your assets like your vehicle and your home may help:

prevent costly repairs
extend their lifespan
improve their efficiency
improve their safety

This may save you money in the long term.

Learn more about maintaining your home with the Canada Mortgage and Housing corporations’ Home Care guide.

Increasing income

Increasing your income may help you pay down debt faster, save more, and improve your financial situation.

Employment

You may be able to increase your employment income by:

asking for a raise
getting a second job, a short-term contract, freelance work, or other temporary work
getting a higher paying job
investing in your education to gain new skills or certifications to qualify for higher-paying jobs

Learn more about finding a job.

Selling and renting

You may be able to leverage your assets to make extra money.

Examples include:

selling unused items
renting out a room or property
leveraging your hobbies by turning them into side businesses

By exploring your options, you may increase your income and make the most of your assets.

Leveraging tax credits and benefits

File your taxes each year to receive any benefits and credits for which you qualify. You might get money back to help repay your debt.

Even if you have little to no income, you should still file your tax return.

Learn more about tax credits and benefits for individuals.

Use the Benefits Finder to find benefits that you may be eligible to receive.

You may get help with your tax return if you have a modest income and a simple tax situation. Volunteers at a free tax clinic may be able to complete your tax return for you.

Find out if you’re eligible for a free tax clinic based on your income and tax situation.

Investing

Investing may help you avoid future debt by accumulating assets and providing financial security.

Investments may:

grow over time, increasing your assets and reducing your need to borrow money
help you pay for unexpected expenses, preventing you from going into debt
generate a passive income, which you may use to pay off debts or cover expenses
prevent your money from losing value due to inflation

You may wish to contribute to retirement accounts, such as RRSPs or TFSAs, to build wealth over time.

Investing on your own may be an option if you:

are confident about your investing knowledge
have the time to follow developments in the financial market

Many individuals work with a financial advisor or planner to help them plan and achieve their financial goals.

Consider consulting a financial advisor to create an investment strategy that aligns with your goals.