How to Make Healthy Changes to Your Debt Mindset in 2018Jan 23, 2018
Canadians have a complicated relationship with debt.
New stats show that even though 40 per cent of Canadians are uncomfortable with their debt load, only one-third of Canadians met their debt goals last year. And, half of Canadians report that their debt weighs on their emotional and physical health.
So, what can Canadians do in 2018 to develop a healthier relationship with their debt?
Believe it or not, the most important first step towards taking control of your debt is changing your debt mindset. Changing your debt habits and your attitude about being in debt can have a positive effect on your ability to get out of debt.
Here are a few healthy changes you can make in 2018.
Debt can take control of your finances
An American personal finance blog called Dear Debt, illustrates exactly how many of us feel when we are in debt. Yes, debt can help us further our education, afford a home and allow us to make major purchases. However, owing a large amount of money can impede your future plans and make it difficult to meet financial goals.
And, the more debt you take on, the more power you assign debt in your life.
How to take back control of your finances
Instead of making resolutions this January, take some time to assess your current financial state. Go over credit card statements, calculate how much interest you are paying on each loan and identify areas in which you are overspending.
This can be a sobering wake-up call for some people, but it’s a necessary step toward making changes to the way you deal with debt and spending.
Christine Drummond from The Wallet Diet has some great advice about how to get out of debt.
Here are more ways to make lasting changes to the way you think of, and deal with debt:
- Follow your own financial path, not someone else’s
Are you a sucker for flash sales and special offers? Canadians are bombarded with opportunities to spend their money. Email marketing, ad campaigns and reality TV are meant to make you feel that sense of FOMO.
Buying something you don’t need or can’t afford, no matter how great the bargain, can lead to debt you don’t want. Remember, your financial situation is uniquely yours — trying to keep up with the Joneses can be frustrating, stressful and expensive.
Solution: Don’t subscribe to emails from retailers and travel sites – these promos make it hard for you to resist spending. Don’t shop or surf unless you need something specific. Avoid impulse purchases — leave items in the online “cart” for a day or two to see if still want them and can afford them. Make a specific list before you shop and stick to it.
- Live within (or below) your means
Spending over and above your income can lead to serious financial trouble.
Solution: Create a solid budget that you can refer to regularly. Track your spending carefully until it becomes a habit and cut back where you can so you’re living within (or below) your means. Now, bank the surplus in a high-interest savings account, or learn to invest.
- Stop debt in its tracks
Relying on debt is like being stuck on a merry-go-round. You pay down some, you borrow a bit more, and so on.
Personal finance expert Preet Banerjee makes an excellent point in his Ted Talk video by saying, “Taking on debt is like robbing your future self.” To break the cycle, you’ll need to change your approach.
Solution: Refuse to use your credit card as a borrowing tool so you can break the cycle of debt and allow yourself to reclaim control over your finances. And, if you’re having trouble with debt management, speak to a debt professional who can outline your debt relief options, or, use this repayment options calculator to try out different debt repayment scenarios.
- Think ahead, plan ahead
There will always be something to save for, no matter what stage you’re at in life. Some may require short-term savings or long-term planning. Failure to plan for unexpected events can cause more emotional and financial stress when they happen.
Solution: You can plan for everything. Start an emergency fund to save for those unexpected life events that creep up — from car repairs to vet bills to job loss. It’s important to know you have something to fall back on without taking on more debt. An emergency fund should cover all monthly living expenses for up to three to six months. Try an online calculator to help you plan your emergency fund strategy.
Forming healthy financial habits takes time. Start small and work your way up to larger goals. When paying down debt, remember to take time to celebrate your victories by allowing yourself small rewards to stay motivated.
Looking for more financial literacy resources? Visit the Financial Consumer Agency of Canada and use Your Financial Toolkit.