Breaking out of the holiday 'debt loop' may be easier than you think
It’s time for a new year and a new you, and – financially speaking – the time to act on paying off debt is now.
In the post-recession decade, we have been enjoying an ultra-low rate environment all in an effort to kick start the Canadian economy. The good news, in an ironic sort of way, is you have been part of the solution. Our reluctance to turn a blind eye to cheap money has helped prop up the economy. The bad news is, you now have a problem: As the economy heals, many Canadians face overwhelming levels of personal debt and are painfully under-saving for retirement and for emergencies.
However, it isn't all doom and gloom. A recent Canadian Association Payroll survey found 66 per cent said they were in a better financial position this year than they were a year ago. Meanwhile, 39 per cent of respondents said they’re optimistic the economy is in fact getting stronger.
At the same time, 40 per cent of respondents indicated they feel overwhelmed with their debt levels. What we have to remember is, being in a better position year-over-year doesn't mean financial strength, but it does mean financial improvement.
As rates resume their upward trajectory, it will be a day of reckoning for some. But for others who have begun to curb their spending and are looking to take charge of their financial situation, there is reason for optimism.
If becoming debt-free is a New Year's goal, here are a few of my favourite financial lessons:
1. Debt is dumb and cash is king. Use cash wherever possible, especially when buying gifts for loved ones.
2. You can't increase your credit card debt if you don't have one.
3. Achieving financial freedom isn't about doing one big thing right – it is about doing a lot of little things right, including:
4. Stop mindless spending – you don’t need that designer coffee
- Eat in, not out
- Reduce waste
- Cancel subscriptions
- Consider staycations
- Be content with what you have
- In short, be mindful about where your dollars are going
5. Try not to borrow from your financial future. If you have been savvy enough to pay yourself first into registered plans such as RRSPs and TFSAs, try not to dip into that money to satisfy impulses.
6. Budgets work. Be realistic about your spending habits, but stick to the budget.
7. Confront your financial facts and surround yourself with people who will support you.
8. Set financial goals that excite you. Change is hard and this is where the real discipline kicks in.
9. Prioritize your debt. The holiday bills are rolling in and the debt is piling up. Pay off the most expensive debt first, the one with the highest interest rate. Arrange automated savings plans that take money directly off your paycheque. If you don't see you won't spend it.
10. Negotiate all contracts. Better rates might be yours for the taking, but it won't happen if you don't ask.
Getting out of debt is hard work but every person deserves to have a financial plan regardless of their wealth situation. It may require a bold move, but having a plan puts you in control and helps turn your intentions into reality.