We spend, our family spends, and our governments spend. Thankfully we can afford to pay back our debts, but if recent trends continue, Canadians are going to be in big trouble when it comes to paying down their debt load.
Unlike governments who have theoretical unlimited access to cash flow – they increase taxes, and have more money – regular canadians can not do that, and getting a better paying job, or a significant raise might not be in the cards.
The only option available for Canadians, is to save, reduce spending and reduce household debt.
Here are a few tips on tackling your household debt:
Figure out your net worth and debt load
It’s important to figure out how deep your debt hole is, so you know what you’re dealing with. Create a monthly budget so you can see where your money is going and how you can make adjustments. See how much you’re currently paying on your debt and if you realistically can, try to pay off your debt faster by increasing payments or doing lump sum payments.
Set a goal
It’s intimidating when you’ve figured out your overall debt load, but it’s important to take on the challenge step by step. First, decide on how you plan to pay off your debt. There are two methods: you tackle the smallest amount of debt (otherwise known as the debt snowball method) or you tackle the amounts with the highest interest.
By the numbers, you’ll be spending less money if you tackle the debt with the highest interest, but according to a study published by the Journal of Marketing Research, people who paid off their smallest amount had a better chance of successfully paying off the rest of their debt. The method works because it gives the debtor motivation and confidence to continue.
Whatever method you choose, come up with a plan and a time frame of when you expect to pay off that debt and slowly tackle each of your accounts.
Maximize your tax refund
It’s not easy to earn more money, but one way you can get more money to put towards your debt is maximizing your tax refund. If you’re self-employed, make sure you claim any and all allowable expenses and deductions. Canadians use TurboTax in large numbers because the tax experts that create that software make it easy for you to maximize your refunds and pay less taxes. It’s brilliant.
Read more about commonly missed tax deductions and get the most you can during tax time.
Another way to reduce your debt load is to make sure to stop incurring penalties when filing taxes. The minute a return or filing is late, a penalty is incurred and paying that to the CRA is a waste because it’s your money, and you have a need for it.
As well, consider consolidating loans to incorporate credit card debt, and if there is equity in your house, re-financing.
Hopefully any or all of these can help you reduce your debt load so that when interest rates increase, you won’t have to choose between putting food on the table for your family and paying 20% interest on your credit card.
TurboTax. We’re here to help!