With interest rates sitting at record-low levels for nearly a decade, many Canadian consumers took advantage of cheap money and proceeded to pile on the debt. This has unfortunately left the average Canadian owing $1.70 for every $1 they earn. It can be a scary time to have such debt.
As the Bank of Canada (BOC) begins to raise interest rates to normalize monetary policy, studies have found that most Canadians won’t be to handle rate hikes due to the size of their debts.
This is understandable. Thanks to monster mortgages, thousands of dollars in lines of credit and maxed out credit cards, who could handle a 25- or 50-basis point increase to interest rates? With stagnant wages and a rising cost of living, suffice to say most people are barely staying afloat.
Moving forward, the only prudent step to take is to pay a visit to a debt counseling service. These entities can ensure that you can wipe away your debt with some hard work and dedication.
Here are five debt counseling tips for Canadians in a rising-rate environment:
1. Put Away Your Plastic for Now
Once you commence this journey to being debt-free, the very first thing you should do is to put away your pieces of plastic. Your Visa, MasterCard, American Express, Capital One, whatever. It’s time to put those cards on ice and to refrain from using them for the next little while.
Rather than paying everything with credit, it’s important to use cash or debit for transactions.
2. Start to Prioritize Your Debts
Grab a cup of coffee, bring all of your statements to the table and calculate all of your debts.
It is crucial to prioritize your debts and figure out which ones you need to pay off first.
Many people choose to either go in ascending or descending order. For instance, if you have a line of credit worth $5,000 and you have two credit cards that have $300 each, you can either first pay down the LOC or pay off the credit cards – and vice versa.
It really depends on your personality and your handling of money. You can go for the two easy wins right away or you can fight the biggest amount first and work your way down.
3. Use Some of Your Savings to Pay Debt
Do you have an abundance of savings in your bank account? Do you have bonds that your grandmother gave you for your university graduation a decade ago? What about some mutual funds? The point is is that you should use a portion of your savings to pay down your debt.
4. Trim Your Expenses & Earn More
Let’s be honest: the primary reason you’re bleeding red ink is because your expenses are too high and your earnings do not match your standard of living. The simple solution is to either trim your expenses – your Cadillac data plan, your all-star cable television package, your thrice weekly trips to restaurants – and/or earn some more money by getting a second job.
For the most part, indebted consumers have a spending problem and not a revenue problem. (We know, it sounds like the government.)
5. Debt Consolidation May be the Answer
In the end, the only answer to all of your pecuniary woes is debt consolidation.
By transferring all of your debts into one giant pile with a single monthly payment, life is just a bit easier to handle. Millions of Canadians have taken on debt consolidation as a tool to fix their money problems. As long as you stay out of debt, debt consolidation will be your saviour.