Eliminating Debt in Canada – An Expert Weighs in on How You Can Become Debt Free

Authored by Athena Nagel

Eliminating debt can be a daunting task, but it’s crucial to your financial well-being. If you’re struggling with debt in Canada, you’re not alone. According to a recent study, the average Canadian has over $20,000 in non-mortgage debt.

Ed Rempel, a fee-for-service financial advisor, has provided individual financial plans for thousands of families. He provides information about a multitude of topics regarding finance, from managing debt to how to purchase a car most cost-effectively. As well, he has proven financial tactics available on his acclaimed blog website.

“Debt is a complicated issue for many Canadians because it’s so severely normalized,” explains Rempel. “It’s considered normal for our country’s young people to go into debt to go to school or to get a car that is well beyond your means and pay it off over time – all to keep up appearances. However, having significant debt can hold you back from your ideal financial future.”

Fortunately, there are steps you can take to eliminate debt and regain control of your finances. Here are some tips to get you started:

Create a budget

Creating a budget is the first step in eliminating debt. You need to know exactly how much money you have coming in and going out each month, and determine whether or not you’re living within your means. Start with listing all of your sources of income, including salary, investments, and other income streams such as side hustles. Then, make a list of all of your monthly expenses, such as rent/mortgage payments, utilities, groceries, transportation, and entertainment. Allow for an estimate of yearly expenses, such as vacations or gifts. Pay attention to free deals. Yes, free deals do exist and you can Enjoy Birthday Freebies and so much more.

Once you have a clearer picture of your income and expenses, you can look at them and see if this is where you want  your money to go. You can identify the areas where you can cut back on your spending. For example, you may have to dial back on your entertainment budget or even switch to a less expensive phone plan. Every little bit helps.

Prioritize your debts 

Not all debts are created equal. Some debts, such as high-interest credit card debt, should be paid off first. Make a list of all your debts, including the balance owed and interest rate. Focus on paying off the debts with the highest interest rates first while continuing to make the minimum payments on your other debts.

“Student loans and lines of credit tend to not have high-interest rates, whereas credit card interest rates tend to be high,” says Rempel. “By eliminating high-interest debt first, you’re going to take greater steps forward than if you continue to only make minimum payments. Lower-interest loans or debts on the other hand can wait a little longer. Although, eliminating all debts should be the ultimate goal.” 

Consider debt refinancing

If you have multiple high-interest debts, you may want to consider refinancing them into a single loan with a lower interest rate. This can make it easier to manage your debt and reduce the amount of interest you pay. Be sure to do your research and compare the terms and fees of different loans before choosing one.

When you talk with your bank, don’t say “consolidation”. A “consolidation loan” is considered to be something desperate people do. It can hurt your credit rating. Say “refinance”, which is something even wealthy people do and is considered smart.

Negotiate with creditors

If you’re having trouble making your debt payments, don’t be afraid to reach out to your creditors. They may be willing to work with you to create a payment plan that fits your budget. For example, they may agree to lower your interest rate or waive late fees.

“Don’t let creditors think for one second that there isn’t room for negotiation,” says Rempel. “Whether you’re talking to your phone company or a creditor, they want to be paid at the end of the day. If you’re willing to push, many will work with you. If one says no, ask to speak to someone else who will negotiate with you.”

For example, for cell phone or TV plans, you can threaten to move to another service and ask for the “retention department”. People in that department can often give you a price break to keep your account.

Cut back on expenses

Reducing your expenses is one of the most effective ways to eliminate debt. Look for ways to cut back on your monthly bills, such as cancelling subscriptions or negotiating lower rates for your utilities. You can also try to reduce your discretionary spending, such as eating out or shopping.

You can save a lot by buying all your cars used. Buy them for half the new price, which usually means they have to be 3 or 4 years old. Get them with low mileage. The best prices are usually right after the warranty ends. If you have a good mechanic, a warranty has minimal benefits.

Consider a side hustle

If you’re struggling to make ends meet, consider taking on a side hustle to earn extra income. There are many opportunities available, such as freelance work, pet-sitting, driving for a ride-sharing service, or just getting a part-time job.

Seek professional help

If you’re overwhelmed by your debt, don’t hesitate to seek professional help. There are many organizations in Canada that offer free debt counselling and financial advice, such as the Credit Counselling Society and the Financial Consumer Agency of Canada.

“There are financial professionals out there who are trained to offer financial counselling services who can help you get a grasp on your financial situation and build you a plan for the future,” says Rempel. “While there is professional financial advice online [I would know, I produce a lot of it], there’s something to be said about having a proper financial plan detailed to you by a professional. Don’t be afraid to reach out – their job isn’t to judge. It’s to help you plan for the future.”

 

Eliminating debt can be a long and challenging process, but it’s essential to your financial stability. By creating a budget, prioritizing your debts, and cutting back on expenses, you can eliminate debt  and take control of your finances.