Weekly Column: Start Anywhere, Pay Down Debt

Start anywhere: pay down debt

A recent survey of over 5000 people by the Canadian Payroll Association found that 40% of respondents spend their entire paycheque, if not more, every week. Among other things, these dismal statistics point out that half of those polled save only 5% or less of their earnings (experts recommend saving 10% or more) and, sadly, 39% of people surveyed are “overwhelmed” by their debt. Read more about this survey at:  http://www.payroll.ca/cpadocs/npw/2016/National_FINAL_EN.pdf

Survey respondents list their most common debts as a mortgage (26%), credit card debt (18%), car loans (17%) and a line of credit (16%). Many people have all of these debts and possibly more, and it can begin to feel desperate. Are you one of these people?

Roll down debt: a review

Last week’s column introduced the idea of paying off your highest interest rate first, then using that payment amount (you’re used to spending it anyway) to increase the payments on your next highest interest rate, and so on, until you are debt free or in a position to start making those snowball payments to your own savings and retirement plan instead of creditors. Sounds wonderful, doesn’t it?

Many people reading, however, are crushed under their debt and feel there’s no light at the end of the tunnel. They feel they don’t control where their money goes and that debt grows even though income has shrunk, is sporadic, or has disappeared. It is grim and there are no easy answers for many families, but a proactive approach might get you out of debt faster than you think.

Remember last week’s example from moneymentors.ca? A payment of $20 above the minimum on a $24,000 credit card debt paid the card off almost 10 years earlier and saved over $1700 in interest. Rather than feeling controlled by your debt, let’s think of ways you can apply just $20 more to your payments and regain control of your finances.

Start anywhere: finding $20

If I told you that you can shave at least $20 from your monthly budget with minimal effort and little sacrifice, would you spend a few minutes to do so?

Dig out all your statements—bank, credit card, line of credit, phone bills, utility, etc. Are you paying extra for a paper copy of these statements? How much are you paying in bank fees? Can you bundle insurance? Can you switch to paying bills online to avoid buying costly cheques? Go to your branch and explain that you need lower fees and ask for options, there is bound to be a cheaper alternative for you. Call your cell phone provider and explain that you are having a hard time making your commitments—what are your options with a smaller package? Cancel some bells and whistles and keep track of your savings. Put that money towards your debt instead.

Are you sometimes penalized for paying late? Would making payments automatic save you on interest and late charges? Set up autopay on some accounts if you are sure that you can cover those bills consistently. Being better organized can save you big if you put that money towards the debts you already have instead of allowing more to pop up.

Are you paying for duplicate services? If you pay for satellite or cable, even at the lowest price available, and have Internet, Netflix, Crave TV, Shomi, or the like, consider what to cancel and what to keep. If you have a land line you barely use, can you reduce to a cell phone only? Discuss what’s right for your family and take the time to eliminate and reduce these bills.

Start anywhere: evaluate your “must haves”

Everyone has a few favorites they are reluctant to cut from the budget. If you like socializing on weekends, can you stay in with a few friends rather than paying for cabs and bar tabs? Can you prepare some simple meals ahead to resist eating out? Can you institute family no-spend days where everyone packs a lunch, avoids stores, and gathers for free activities? While you have your statements out reducing fees, examine them for how much is spent on entertainment. Although you may feel like you have cut back, you may be surprised what is spent on treats and spur-of-the-moment choices. Look through your fridge at what consistently gets thrown out, and stop buying it.

Once you have trimmed your spending, pay that amount on your highest interest rate consistently. Do not allow your monthly payment to slide lower because the credit card company says it can. If you are accustomed to paying $200/mo on your Visa ($220 now that you’ve read this, right?), do your best to keep paying that amount or more until the debt is eliminated. It’s not much, but it’s a start. Start today.