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5 Very Simple Debt Management Tips to Improve Your Personal Finances

Carter Bell 2016-06-07

Let's be honest: Canadians aren't impervious to savings, but they need to do a better job.

The total amount of credit card debt we have in Canada isn't good. When you look at certain pockets of the country – Alberta and the Maritimes, for instance - it's worse than others. Overall, the average credit card debt is around $4,000, and it keeps going up as the years go by.

And it isn't just credit card debt that plays an enormous factor in our daily personal finances. Automobile loans, mortgages, lines of credit and other financial products are eating up our incomes. With stagnant incomes, tax hikes and a rising cost of living, it seems Canadian consumers are having a tough time keeping their heads above water.

Although the Bank of Canada (BoC) isn't likely to raise interest rates anytime soon, the central bank will certainly raise rates in the coming years. Whether it's 25 basis points or one percent, any increase to interest rates could affect you and your family because debt repayment fees will skyrocket, and this wouldn't bode well for a household that lives paycheque to paycheque.

What's the solution? Reining in your debt, increasing your savings and improving your finances. One possible option is to consult a financial expert, such as the ones working at Credit Counselling Services of Atlantic Canada, to go over your options and understand where your finances stand.

Here are five very simple debt management tips to improve your personal finances:


 Become Your Own Debt Manager

You don't have to go back to university to become a financial expert. You don't need to apply for certification. You don't have to garner a license from the province. With that being said, you can become your very own debt manager by tackling your debts head first. Nobody knows your personal finances, income, spending habits and thoughts like you do, which is why this works. This kind of do-it-yourself (DIY) can save you money in the end, but it does require time, knowledge and energy. But it's worth it in the end. Plus you can learn a lot in this process.


 DIY Debt Management

As you work as your debt management advisor, you'll be dealing with a lot creditors, lenders and companies. You'll have two options: debt negotiation or debt consolidation. It'll be easier to settle with the latter than the former, but it's still possible to achieve a debt settlement. As you're going it alone, here are several tips to remember as you continue your journey to financial freedom:

- You will likely pay some money up front to your lenders (likely half of the loan sum).

- Get yourself prepared to speak with an attorney regarding your debts.

- Always send a money order when you make payments towards your credit.

- Negotiate with your creditors for better terms, longer repayment periods, etc.

- Look for one of these two statuses: "Paid in Full" or "Debt Satisfied." Ensure you do not have "Debt Still Active" status because this isn't good for your credit report.

Since you're the lone wolf, these suggestions are necessary to improve your debt plight.


 Refrain From Giving in to Temptation

Once we leave our home, we're constantly being tempted with products. Everything from Tim Hortons coffee to a piece of clothing at the local shopping mall, we're alwaysys being encouraged to buy something, especially if you have a couple of pieces of plastic in your wallet.

If you're giving in to the feeling of temptation then refrain from doing so. Never give in. You should always avoid spending your hard earned money on unnecessary things. A Tim Hortons coffee is delicious, but you have a thermos for a reason. It's nice to have a brand new sweater, but you already have six different sweaters in the closet. Do you remember the tale of Faust?

This is the bad debt to avoid at all times. Do you want to pay 20 percent interest for a $20 item?


 Prioritizing Your Obligations

Consumers usually get themselves into trouble because they don't budget and they don't prioritize their obligations, such as property taxes, utilities, rent/mortgage and so on. This is something you'll need to do if you want to slash your debt and improve your finances.

Here are a few tips to give your personal finances a little boost:

- According to the Canada Mortgage and Housing Corporation, monthly housing expenses should never exceed more than one-third of your income.

- Your total monthly debt payments should not go above 40 percent of your income.

- Only one-quarter of your earnings should cover your daily expenses.

- Ten percent of your income should be allocated to your savings.

- The remaining sum should be used for your debts (prioritize them based on interest).

- We all have our obligations, and they don't have to be difficult to maintain if you prioritize.


 Use Cash, Limit Your Credit Cards, Pay Yourself

Simply put: use cash for your daily transactions, limit your credit cards to just one and pay yourself first each time you get your paycheck. It's as simple and easy as this. Just because the war on cash has gone into overdrive, it doesn't mean you have to use plastic all the time.

You may feel like you're drowning in debt. You feel as if just one paycheck will send your household into a collapse. You feel hopeless and restless because of your debt. By becoming your very own debt management advisor and taking the necessary steps to tackling your debt and giving your personal finances a shot in the arm, you can feel a lot more confident living your life every single day. Debt shouldn't ruin your life. It only can if you allow it and enable it to do so.

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