Basic Guidelines to Debt Reduction


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:

Get rid of the high-interest debts first and avoid incurring this kind of debt ever again. 

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.

Consolidate your debts wisely.

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…

Do not increase your debts.

…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. 

Cut your costs and spending every which way. 

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. 

Have a good, solid budget that you can work with.

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.

Get professional assistance from reputable financial institutions. 

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.

Share your goals with your loved ones.

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. 


Happy Spouse, Happy House


One of the biggest challenges of being single and managing your finances is that you don’t split your living costs with another person unless you live with a roommate or a few. Managing your own money involves more creativity, drive, perseverance, and self-discipline. The good thing about it is having the independence to make your own decisions on your life and money.

When you live with your significant other, you have two key advantages: 1) You’ve got two incomes that contribute to living costs; 2) You have a combination of strengths to work with. When a couple unites their income and money management skills they can be unstoppable with this winning combination.

Uniting forces and income can also pose many challenges, especially since we each have a unique relationship with money. You might be okay at budgeting, yet your spouse might be hopeless with money. You both could be terrible at money management. You might disagree entirely with your spouse and have very different ideas on how money should be spent. The worst is when the spouse with worse habits has greater influence over the other’s habits or efforts; from there develops resentment or a dynamic of enabling which will sink the household’s finances.

I never want to fight over money with my man, JP. I had seen plenty of that growing up and I know it gets nobody anywhere. Since my biorhythms are obsessively in sync with the days all the different bills are due each month, I’ve always been the one to budget and do all the banking. This seemed like a workable situation until our needs shifted and called for further action.

When we both started trading stocks, we scaled back on shopping and going out so that we could commit more cash to buying stocks. Life felt more frugal because on the surface our spending activities changed; in reality the amount of spending didn’t. As the one paying the bills, I became stressed out from knowing things were heading in a desperate direction. When I tried to make suggestions for improvement, the conversation got tense, and at times, confrontational. I avoided talking about what was really going on — until things got so frustrating that I had no choice but to somehow get JP on board.

Instead of trying to win through argument, I decided to let the numbers do the talking. I printed out all the statements from our banks and credit cards over the previous six months. I made a spreadsheet that divided up our spending into housing, utilities, groceries, alcohol, healthcare, and entertainment, and I tallied the spending for each category. It became very obvious that in lieu of going out for fun, we were shopping more online, eating too much takeout, and drinking a lot at home instead. When we sat down to analyze the numbers, we were both humbled and quite embarrassed with how far we had let things go.

What happened after that, I didn’t see coming. JP became an unstoppable force in minimizing our household spending and he revealed his genius at making a dollar stretch. He got busy looking for the cheapest discount brokerages to trade with, got rid of unnecessary data services, and basically found a way for us to trade stocks the cheapest way possible. All our bills are lower than ever now thanks to his charming persistence in negotiating lower rates with our various service providers. JP also has an uncanny skill of remembering the prices on everything he sees, so he knows where to get the cheapest of anything. He became the rewards points king and we always get money back on things we regularly spend on. He sold everything in the house that we didn’t need in yard sales and on Kijiji. I can go on about his many strategies, but I’ll save it for my ‘fun’ancial tidbits!

Now, we use our combined skill set to optimize our money management. While I do our quarterly budget projections, JP figures out a way to cut the costs down further on those projections. Doing this has also enhanced how we work together in building our investment portfolio.

We have so much respect for each other’s personal ambitions and have made a lot of sacrifices for the other to make these things happen. There were times when it looked like we’d have to walk away from trying to accomplish these goals (such as learning how to trade stocks and writing my book), but it took a united effort with managing our finances to make these possibilities become realities. We still are a ways away from where we want to be financially, but our confidence lies not in how much we have, but in being on the same page with how we manage our money.

The glaring truth came to surface from a few monthly statements and a telling spreadsheet. We can convince ourselves to believe whatever we want to hear, but the numbers don’t lie. You and your spouse just have to be ready for the truth and have the will to evolve your situation TOGETHER.