Did you overspend in 2013? Did you purchase more than you can afford over the holidays? Those bills are likely piled up on your desk – or perhaps even unopened – and you’re wondering how everything is going to get paid. You are not alone. Paying down debt is a top priority for Canadians in 2014 according to a poll from CIBC. The results show that managing day-to-day spending and paying down bills has become more important to Canadians than longer term goals like retirement planning.
Start the year the right way and plan to get your debt under control.
Here are six steps to consider:
- Track all your income and expenses for a month. Once you start tracking your spending, you will start to see spending patterns and can make changes, where needed.
- Create a budget. Set up a template with categorized items and budget what you can afford to spend on food, gas, entertainment, etc. Sample budgets are available for free online. You can also get help in creating a budget through your local credit counseling centre.
- Create a debt payoff plan. Create a list of all your debts along with the interest rate of each and the minimum required payment. Knowing your total debt load will make it easier to create a realistic payment plan. Your plan must complement your budget because you don’t want to overextend yourself.
- Pay off the most expensive debt first. Review the interest rates of all of your various debts and sort them from highest to lowest. Pay off the balance with the highest interest first by freeing up money from your budget. Once the debt with the highest interest is paid, take that same amount and top up the payment on the next highest interest bearing debt.
- Stop taking on new debt. As you start to pay down your debt, stop using credit cards on a regular basis. It’s probably a good idea to leave the cards at home when you’re out shopping so you aren’t tempted.
- Pay more than the minimum. Break the habit of paying only the minimum required each month on your credit card statement. Paying the minimum significantly impacts your ability to reduce your debt. Also, consider making weekly or bi-weekly payments. By making multiple payments or paying early, you will reduce the interest and pay down the debt quicker.
Taking the first step will be the toughest but will be worth it. If you find that the amount of your debt is a real concern to you, contact Taylor Leibow and we will explore other solutions for you.