How to reduce debt — it's a thought that keeps many Canadians up at night; in fact, almost 20 percent of Canadians. Do money troubles keep you up at night? Are they eating away at you during the day? You’re not alone. Financial stress is very common, and today the average Canadian debt (including mortgages) has reached $71,300, an increase of 2.6% over the same period last year. The number of Canadians posting higher credit balances also reached nearly 34%, a big jump from 2018. So how can you reduce debt and avoid financial difficulties down the road? We’ve put together six debt reduction strategies that may be able to help.
6 Ways to Reduce Debt and Avoid Financial Difficulties
No matter your financial situation, reducing debt often takes time and effort, but it doesn’t have to be as hard as you think if you follow some simple techniques, from curtailing credit card usage to tracking your expenses. Below, we’ve listed six ways you may be able to put a dent in your debt and avoid financial difficulties. Have some debt-reducing ideas of your own? Be sure to share them with us in the comments at the bottom.
1. Not Using Credit or Debit Cards
The majority of Canadians—nearly 80%—are paying with plastic versus cash. This is a frightening trend, especially for those in financial trouble. When we use a credit card, it’s easier to go over our spending allowance. For example, say you’re clothes shopping and have $200 cash to spend; you’re not going over that amount because you can’t! But if you’ve got a credit card, something else “you’ve just gotta have” is likely to catch your eye, or maybe the sales clerk will talk you into throwing in an extra item because they have an amazing deal. With a credit card, there’s nothing holding you back from spending more.
Forbes recently reported on a study that found that shoppers spend up to 100% more when using credit instead of cash. In one study, they offered people the chance to buy in-demand sports tickets; those that were told they could use a credit card were willing to pay twice as much as those who had to pay cash. The moral of the story? Put the cards on ice!
2. Using a Prepaid Card
This goes hand in hand with the technique above. Many people don’t want the burden of carrying around cash, resorting to their credit or debit cards. But, you can still flash plastic while keeping your spending in check with a prepaid card. With a prepaid card, you load it with your own money.
With most prepaid cards, you can load them online simply by writing a cheque and taking a photo of it with your mobile device (you can also load them in-person at a variety of retail stores). Now, when you want to go shopping with $200 and not go over that amount, you can load $200 on to the card and forgo carrying cash. And since you cannot go over the amount you’ve loaded onto the card, you never have to worry about overdraft fees, which can often cost as much as $36 per transaction, adding to your financial difficulties.
3. Tracking Your Spending
Everyone can benefit from keeping track of their expenses, no matter what stage of life they’re in. Keeping track of expenses takes some discipline, but it’s well worth the time. And after you’ve been doing it for a while, it’ll seem like second nature. Tracking your expenses means keeping track of everything you spend money on, from your mortgage or rent to a pack of gum.
Over time, you’ll see where you’re spending money needlessly and can begin to make cuts, so you can start paying down debt or saving up money for whatever financial goal you may have. Plus, Credit Canada makes it easy for you. We’ve created a free downloadable expense tracker that you can download here. Want to know some other benefits of this money-saving technique, such as budget planning? Check out our blog, Why You Need to Have a Weekly Expense Tracker.
4. Reduce Your Spending
It may seem easier said than done, but there are many ways you can cut back on spending. We’ve talked about a lot of these tricks in previous blogs, such as buying store brands instead of name brands (proven to save up to $80 per month), washing clothes or dishes during off-peak hours when it costs less (after 7:00 pm on weekdays or on weekends), and breaking bad spending habits, from buying coffee-to-go to purchasing overpriced movie theater concessions. You’ll find a lot more debt help advice and ideas to reduce spending in the “saving money” section of our blog.
5. Reduce Your Investing
For the first time in a decade, the value of investments in Canada is down—and for good reason. The Globe and Mail reports that many Canadians are diverting personal savings toward paying down debt rather than investing. It’s not a bad idea. While investments are great to have, if you’re feeling the pinch from various debts, it may be time to reduce the amount you’re investing and increase the amount you pay toward debt. After all, what you’re earning through investments may be much less than what you’re paying in interest fees. For more on this topic, check out our blog When to be Saving Versus Investing Money.
6. Starting an Emergency Savings Fund
We’ve said it before and we’ll say it again: Everyone should have an emergency savings fund. It may seem impossible when you’re living paycheque to paycheque, but it’s not as hard as it seems. Start small. Put change into a piggy bank, or if you’re using a debit card, try using roundups which automatically move change on purchases into a savings account. For example, if you spend $10.50, you’ll be charged $11 and 50 cents will go into savings. You’ll be surprised at how little you miss that change, and how quickly it can add up. With an emergency fund, you’ll be able to pay unexpected expenses, like a car repair or a vet bill without having to resort to credit cards that’ll get you with interest.
Still Experiencing Financial Difficulties? Contact Credit Canada
If you’ve tried these debt-reducing techniques or some of your own but still feel like you simply can’t make ends meet, we may be able to help you with getting out of debt. Credit Canada has been helping Canadians experiencing financial difficulties get out of debt for over 50 years. Our certified Credit Counsellors know how to solve debt problems, and offer financial tips and advice along the way. They can also talk to you about the benefits of a Debt Consolidation Program, which doesn't require a loan. A Debt Consolidation Program is a way to wrap all your unsecured debts into one easy monthly payment, with reduced interest or it's waived completely. Give us a call today at 1.800.267.2272 for help with financial problems. Our advice is completely free and confidential.