A Debt Repayment Plan Can Prepare You for Economic ShiftsFeb 22, 2016
It’s been an eventful start to the 2016 Canadian economy – a low loonie, rising grocery prices, and an increase in the cost of hydro – making debt repayment an even bigger priority as a result. While a recent Ipsos Reid poll conducted on behalf of BDO Canada revealed that 49 per cent of respondents believe their debt levels will be better by the end of 2016, 62 per cent also stated that a $300 increase on their monthly debt payments would make it hard to make ends meet. Consider stress-testing your own debt to avoid problems with debt repayment and to better adapt to the changes in the economy.
Take a financial health test to determine your financial situation. The questions you are asked will have you thinking about your current finances, for example, if you are constantly exceeding your credit card limit or avoid opening your bills or if you feel you are unable to manage your finances. If you find that you answered ‘yes’ to more than one question regarding debt payments, you might benefit from creating a debt repayment plan to ensure you reduce your loans by the end of the year. This plan can range from re-tooling your budget to prepare for rising food costs, implementing do-it-yourself methods to tackle your credit card debt, or visiting a Trustee in Bankruptcy to learn more about other strategies to control your finances.
As a result of the weak loonie, the cost of produce has spiked, putting a strain on consumer budgets. According to an annual report by the Food Institute at University of Guelph, the price of fruits and vegetables went up between 9.1 to 10.1 per cent last year, with an expected additional increase of 4.5 per cent for some items this year. To adapt to these pricing changes, consider using this budget calculator to see where your money is going. It will give you a better illustration of your spending, letting you know if you can shift money towards household necessities. In addition to preparing you for rising costs, the budget calculator can help you manage your debt payments to better reach your financial goals. If you aren’t too familiar with the budgeting process to begin with, the Financial Consumer Agency of Canada (FCAC) has tips for making a budget and sticking to it.
To further manage your money, there are DIY methods for tackling credit card debt. Two popular techniques are the avalanche method and snowball method. The avalanche method involves directing a greater portion of your money for debt repayment towards your debts with the highest interest rate, while maintaining minimum payments on your other debts. Once the highest interest rate debt is paid off, tackle your next highest interest rate debt. Ideally, this process continues until you’re debt free. Alternatively, you can apply the snowball method to credit card repayment which allots any extra money to your smallest debt while still paying the minimum on the others.
If your financial health needs more than budgeting, it might be beneficial to seek other debt repayment options like a consumer proposal. You can also talk to a Trustee in Bankruptcy about your situation to determine what the best plan is for you to get ahead of your debt.
What are your thoughts on BDO’s recent poll results? Do you have a plan in place to reduce your debt by the end of 2016? Tell us on Twitter by using the hashtags #BDODebtRelief and #LetsTalkDebt.