2020 was a difficult year for many of us. Amid the chaos caused by the COVID-19 pandemic, a lot of people were furloughed or lost their jobs. To make ends meet, they had no choice but to turn to credit and expand their debt.
According to the latest MNP Consumer Debt Index, more than half of Canadians are just $200 or less away from being unable to meet their monthly financial obligations. A third of them admit to being already insolvent.
As financial aid and loan deferment programs slow down, we can expect to see an avalanche of households fall behind on payments or default on their loans, mortgages, car payments, and credit cards.
Because of the pandemic, a quarter of Canadians have increased their debt and used this money to pay their bills.
We’ve all had to take a step back, review our financial situation and look for ways to improve it. Our financial resilience will undoubtedly continue to be put to the test throughout 2021, and the consequences of this year’s events could be felt for many years to come.
Being in debt might make you feel as if you’re stuck in a rut. It can affect your mental health because it causes a lot of stress, but it can also have a detrimental impact on your future because it limits your ability to save money for important purchases further down the line.
To manage the debt of any kind, you need to have a repayment plan, but it becomes overwhelming when you don’t even know where to start. If you’re looking for a bit of guidance, you’ve come to the right place. With time and patience, you can start building a strong foundation for your financial future.
Prioritize Your Debts
When in debt, don’t hide your head in the sand. Calculate how much money you owe, to whom you owe it, and the deadline by which you need to repay it.
There are many free apps you can use to review your finances and find areas where you can cut back and use that money to build your savings or pay off your debts.
Prioritize debts like your mortgage and then try to make the minimum payment on any other debts you might have, such as credit card debt, to maintain a good credit rating and avoid default charges. If you already have bad credit, you can still find lenders with decent interest rates. Search for “bad credit loans Ontario” or the city you’re from, but always use tools that allow you to compare several lenders and read the fine print.
When paying off debt, it’s usually better to start with the loans that have the highest interest and charges since the more you put them off, the more money you’ll lose.
You’ll need a budget to keep your expenses under control until your debt is paid. A simple spreadsheet will do. Remember to budget for holidays and birthdays, as these are occasions when you will be spending more money than usual.
Consolidate Your Debt
Debt consolidation is another strategy to stay on top of your financial situation. If you’re always juggling credit card balances, overdrafts, and car loan payments, it might be easier and safer to consolidate all of your debts into a single personal loan.
Right now, interest rates are still historically low, but considering the economic environment we’re in, you can expect lenders to be extra careful when evaluating your application. They’re mostly concerned about your future employment prospects.
If you do get approved for a loan that allows you to pay off your credit cards, so you’re no longer charged high-interest rates, stop using those credit cards until you’re done paying off the loan. The last thing you need right now is to add to your debt.
Consult Debt Experts
Some people who are struggling financially as a result of the pandemic may need debt counselling. You should consult a debt expert if:
- Your debt and bills surpass your household income
- You’re falling behind on important bills like mortgage, rent, and utilities
- Your income has dropped because of the pandemic, and you’re no longer able to even make minimum payments on some debts.
There are lots of organizations offering free counselling at this time, and they can help guide you through the process of transitioning to a manageable long-term payment plan. Furthermore, banks and service providers also have new provisions to protect people who are struggling financially.
You can contact them directly and ask about what arrangements they can make.
Change Your Credit Cards
Transferring existing credit balances to a credit card with a zero transfer balance is another option to get out of debt. This will help you save on interest feels.
However, once again, you need to be careful and read the fine print so you don’t end up paying unaffordable interest fees once the initial zero percent interest offer runs out. Overdraft fees have also increased considerably this year, with some people facing charges of up to 40%.
You should also check your credit score before you apply to make sure you are in the best possible position to get a good deal.
Cutting back on non-essential spending may help you get out of debt faster. Every dollar you save can go toward making you debt-free, so see if there are any direct debits you could cancel, like subscriptions or membership fees for things you don’t use anymore.
Additionally, you can cut back on regular spending through cheaper alternatives. For instance, you could pack your own lunch and coffee. This might sound frustrating because they’re your small daily indulgences that you’ve grown used to but remember that this is only temporary. The relief you’ll feel once you’re free from the worries that come with debt will make it all worth it.
You should also be aware that many businesses now charge loyal customers more than new ones, so using comparison sites to find the best deals is another great way to save money.
If you realize that you’re paying for electricity, internet, TV or cellphone plan more than new customers, you can shop around for better rates and then call your current provider to let them know you’re considering switching because of a better bargain and see if they can match it.
In most cases, they will want to keep you as a customer, and you’ll get lower bills in return.