Whether you’re trying to aggressively pay off your debts or saving for some big goal (like buying a home), the principles of money management are very similar. In many ways, the way you live your life may seem the same because the key to long-term success is more about establishing good ongoing habits and making them a part of your regular decision-making process. In other words, all goals involve a plan, some structure, discipline in practice, the determination to stay on track, and faith in the process.
If you have debts, you can’t successfully pay them down without accepting and following these fundamental guidelines:
When you make a loan payment, a big part of it goes to interest and rest goes to the principal amount that you borrowed. The higher the interest, the harder it is to pay off the borrowed amount. Paying off the high-interest debts first will mean paying less interest overall. Credit cards are typically the high-interest culprits. Once you pay off your credit cards, be sure to pay off the full balance each month going forward.
You could reduce the high-interest debts by consolidating them into a low-interest loan such as a credit line with the bank. If you have student loans from the Canadian government, then you could be getting a tax credit back from the interest portion of your repayment — you may want to hold off on consolidating them with your other debts and pay these off separately.
If you’re not able to get a low-interest credit line, then proceed to pay off the debt with the smallest balance first (of course, while paying the minimums on your other debts). Once that’s paid off, then pay off the next smallest balance and keep going until you slay the rest of them. Some credit cards offer very low to zero percent interest for a limited amount of time (usually a year). If it’s realistic to pay the full balance off within those time constraints, you could consider transferring your other debt balances to such credit cards for a service charge. But please remember…
…just because you transferred your credit card balances to lower-interest options doesn’t mean it’s time to go shopping again. If you can’t take your own debt takedown seriously, then you can’t expect others to take your goals seriously. If the temptation is too much to handle, cancel those cards.
You must be ruthless when it comes to reducing your bills and expenses. There are endless ways to cut costs and the internet is bursting with budgeting tips. Paying off debts doesn’t mean enduring years of suffering. You can still have fun and reward yourself from time to time — you just have to spend wisely and get creative with low-budget options. I’ve created ‘Fun’ancial Tidbits to inspire wise spending and mindful money management. Additionally, it’s essential that you address any emotional spending habits that weaken your will (like gambling or a shopping addiction) because caving into these habits even just once will sabotage your efforts.
Some periods will be tougher than others as you tackle your debt. “Loan Payments” is going to be a major part of your budget for a while. If your budget is complicated, overly ambitious, and not realistic, you could be setting yourself up for possible failure. You should overestimate your expenses as it’s easier to end up with a surplus than it is to get blindsided by an unexpected deficit. It’s also a good idea to forecast your budget ahead by a few months to factor in upcoming events, birthdays, holidays, annual expenses, etc. That way, you can get more strategic ahead of time by reducing your spending further or picking up extra work to make up the difference or to catch up faster.
You might feel like your debt situation offers no hope. The folks at your bank are pros and have seen it all. If you’re shy about going in to talk to someone in person, you can call them and ask them for advice and they can provide service over the phone. They can advise you on your loan payment options and various strategies. These advisors can surprise you with helpful things you maybe never thought of. If you give them a chance to support you, you increase your chances of succeeding in paying off your debts.
It’s understandable if you want to keep your financial woes a private matter; you either don’t want to stress others out or be judged by your problems. You might feel alone and get stressed out as you work hard to unburden yourself of debts. It’s nice to get emotional support from people who really care about you. With team support, you can share stuff, exchange money-saving ideas, and have low-budget gatherings. Heck, you’ll probably find out who your real friends are!
The journey towards financial freedom can seem long and arduous. You have to know that there are many folks out there, just like you, who have worked through seemingly impossible situations to pay off their debts. They put their minds to it, created a plan, and learned a new set of money management skills that set them up for financial success later on. Overcoming a hurdle like this will give you the confidence and good habits to successfully tackle your future goals.
My man JP and I went to NY state last weekend to watch the Cult play live AGAIN, for the second time in the same week. The band’s name is very fitting for fans like us who obsessively follow them. It was so worth it as the lead singer, Ian Astbury, tossed me his tambourine!
For this trip, we had two free nights at a hotel, paid for by gas points collected on our credit card. The whole trip, including the concert tickets, cost us very little. For years, I’ve joined points programs to get money off my purchases or money back; now it’s more of a joint effort between me and JP and it’s really paying off. This year so far, we received from reward points alone the following:
Rogers Bank Mastercard: $158 cash back, applied to our credit card balance
Cineplex Scene Membership: Seven free movies
CIBC Mastercard Petro-Canada Points: Three free nights in hotels
PC Membership Points: $20 off our groceries
JP and I recently signed up for the PC Financial Mastercard to really up our game in getting more off our groceries than what our basic membership points card could get us. Of course, this is all worth doing if you pay off your balance each month. It’s also extremely useful and more effective to have a good tracking system. There are some really savvy consumers out there (like Mommy Points and The Points Guy) who really know how to maximize their purchases and rewards points usage and do amazing things like fly the world, stay at hotels, and eat in nice restaurants for free or for very little.
We’re a two-person household. Between the two of us, there are multiple bank accounts, investment accounts, trading accounts, credit cards, and reward memberships. I won’t pretend that I’m on top of keeping track of it all since in the last year, I’d become more focused on writing and marketing my book. We have to pool our efforts. I’m quite lazy with tracking all our rewards points, but thankfully, JP is a whiz when it comes to price comparison on everything we buy and how much our points accumulate. I’m the one who ensures all the bills get paid on time and that we’re within our budget range.
A few years ago, we made it our goal to reduce our monthly expenses to as little as possible, and we did. Last year, we made it our goal to become more aware of how to get rewarded for what we actually spend. This has not only made life cheaper, it’s made it more fun!