It's a warm summer day and you can feel the sun beating down on your skin. You are on vacation and at your favourite lake. You've spent the day on the beach soaking up the sun and now you are going to continuing relaxing on the water. An orange floating mat is tucked under your left arm. With only a few boats in the distance, you decide it's a beautiful day for lounging on the lake.
Grinning, you dip one foot into the cool water; then the other. You shiver, but you keep going. As soon as you are deep enough, you pull yourself on top of the mat. You get comfortable and gaze up at the sky.
Minutes pass as you watch the white clouds that are dotted like feathery pillows in the deep blue sky. A gentle breeze is pushing them slowly. Suddenly a roar of a boat heading back to shore snaps you to attention. Sitting up, you see the beach in the far distance. Somehow, you've floated past the buoys. You try to touch the ground but realize it is too far beneath you. What will you do?
Managing debt can sometimes make you feel as though you have drifted too far into the middle of the lake. If you are feeling overwhelmed with debt, there are some strategies you can use to get to the shore and make your debt more manageable. Here's how:
1. Create a budget.
One of the first steps is to create a budget. By figuring out the money that is coming in (income) and the money that is going out (expenses), you will be able to paint a clearer picture of how you are spending money and places you may be able to save or manage your debt better.
2. Reorganize your payments.
Another way to manage your debt is to take a look at reorganizing your payments. You may be able to save money through:
a. Restructuring your mortgage with different terms and interest rates.
b. Looking for more flexible payment options with your loans. For example, if you have student loans, you may be able to apply for debt repayment assistance (where you pay a percentage of your income).
c. Contacting credit card companies to discuss payment arrangements if you are unable to make a payment.
d. Making minimum payment on your credit cards (if needed) until you get back on your feet.
e. Checking to see if your financial institution offers any assistance. Some financial institutions offer 'skip a payment' options that can help you get back on your feet in the meantime.
3. Cut back.
You may be able to find other ways to save money through cutting back. For example:
a. If you love your morning coffee or tea but don't like the price tag that may come with it, why not make it at home?
b. If you have the option, you could try switching utility providers,
c. If you have a cell phone, give your cell phone provider a call. Maybe there is a better monthly option that could save you money.
4. Set up emergency savings, if possible.
This one may be tough. If you feel you are barely getting by, the thought of adding something to savings may seem overwhelming. By setting up emergency savings (which consists of three to six months of living expenses), you have peace of mind knowing you will be okay in the event to of a job loss, sickness or something unexpected. You may be able to tap into a tax refund from investing into an RRSP that may make savings more achievable. Another option is to pay yourself first where your savings are on automatic. This way it goes into your savings account before you can spend it.
5. Check your entitlements.
Perhaps you can save money on your taxes by taking advantage of some tax credits. For example, here are a few that may benefit you:
a. Disability amount
b. Donations and gifts
c. Employee's tools tax credits
d. Home buyers' amount
e. Interest paid on student loans
f. Medical expenses
g. Tuition and education amounts
By taking advantage of tax credits, you may be able to ask for less tax taken off your paycheque. Then, you can put this money into a savings account and earn interest on it. Did you know the government earns interest on the taxes you pay each year?
6. Look for advice.
It's important to find the right type of advice when paying down debt. Helpful tips can assist you with making the best decisions to save you the most money and help you manage your debt.
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