Category: Debt

June 1, 2023 Debt

How To Live Debt-Free!

Image by Jill Wellington from Pixabay

You may be thinking that living debt-free is impossible! And it’s not easy, but it’s well worth it, as living debt-free can bring a sense of financial stability and freedom to your life.

These are the vital steps you need to take to move towards living a debt-free life:

  1. Create a budget.
  2. Pay off debt.
  3. Stop accruing new debt!
  4. Live below your means.
  5. Build an emergency fund.
  6. Invest in your future.

Create a Budget

One of the most critical steps in living debt-free is creating a budget. A budget will help you track your income and expenses, so you can identify areas where you can cut back and save money.

List all your fixed expenses (rent or mortgage payment, car payments, utilities, etc.), then your variable expenses (shopping, dining out, etc.). From there, determine how much money you have left over and see if there’s anything you can cut back on. This may seem like a lot of work, but you can quickly find all this information from your online banking portal.

Pay Off Debt

If you have debt, pay it off as soon as possible. Start by paying off high-interest (credit card) debt first, as this type can quickly spiral out of control. Once you’ve paid off high-interest debt, pay off other debts, such as student or car loans.

Not sure how much debt you have or what it’s costing you? Make a spreadsheet that lists all your debts and their interest rates.

Stop Accruing New Debt

Once you’ve paid off your debt, avoiding accruing new debt is essential. This means only making purchases you can pay for in cash or with a debit card.

You may want to consider using credit cards for everyday purchases and only use them for emergencies or large purchases that you can pay off monthly. However, if you’re good at paying off your balance every month and earn points or cash back on your credit card, using your credit cards regularly should be fine.

Build an Emergency Fund

An emergency fund can help you avoid accruing new debt when unexpected expenses arise. Start by saving a small amount each month, and over time, build up your emergency fund to at least three to six months’ worth of expenses.

Live Below Your Means

Living below your means means spending less money than you earn, which can help you save money and reduce your risk of accruing debt. Look for ways to reduce expenses, such as reducing your monthly bills, cooking at home instead of eating out, and shopping for deals.

Be mindful of your spending and avoid impulsive purchases. Ask yourself if each purchase is necessary and if you can afford it. If you can’t afford it, wait until you can.

Invest in Your Future

Once you’ve paid off your debt and built up your emergency fund, invest in your future. The earlier you start investing, the more time your money has to grow, which can help you achieve your financial goals.

I suggest you start with a Tax-Free Savings Account (TFSA). You can take your money out at any time without penalty and never pay taxes on withdrawals or any gains you make in the account.

Conclusion

Living debt-free requires discipline and a focus on spending and saving, but it’s well worth it! You can achieve financial stability and freedom by living debt-free with patience and persistence.

What’s your best tip towards being debt-free? Tell me in the comments!

June 1, 2022 Debt

What are the worst types of debt to have?

One thing that personal finance writers focus on a lot is debt – and there’s a good reason for that! Debt can make your life very stressful and challenge your ability to achieve your financial dreams. We’ll explain why the following types of debt are the worst type of debt to have:

  • Credit card debt.
  • Payday loans.
  • Vacation debt.

Credit Card Debt

Credit card debt is one of the worst types of have for two reasons:

  • The interest rates are super high! Depending on your credit card, you may be looking at interest rates of twenty percent or more – which adds up quickly. And since credit cards let you pay the minimum balance each month, they give you the illusion you’ve got your debt under control when you don’t.
  • A lot of credit card debt is debt that could have been avoided. While you may put essentials such as your groceries on a credit card, you will likely put a lot of unnecessary items on it, like impulse purchases and meals out you couldn’t afford.

Payday Loans

Payday loans can seem very attractive when you’re in a bind, but they charge even higher interest rates than credit cards and can take months to pay off.

Here’s an example of why a payday loan is a bad debt to have:

  1. You go to a payday lender to borrow 500 dollars.
  2. Your payday loan will cost you $17 per $100 that you borrow. This is the same as an annual interest rate of 442%!
  3. You will have to pay interest as long as you owe any money on the loan, which can add up.
  4. You may have to pay additional fees on top of interest if you can’t pay your loan back in the agreed-upon period.

Payday loans are a type of debt you should avoid  – even overdraft protection on a bank account or a cash advance on a credit card are cheaper!

Vacation Debt

Now that travel restrictions are easing; you may consider taking a vacation. That’s a great idea if you’ve got the money saved for it!

If, however, you haven’t saved up for a vacation, then taking on debt to pay for one is a bad idea. There are a few reasons for this:

  • Unlike a car loan or a mortgage, you have nothing tangible as a result of taking on vacation debt.
  • You’re likely to put your vacation on a credit card, which charges high-interest rates and can take months to pay off.
  • Any good memories you have of your trip will be soured by the fact you’ll be paying off the cost of it for several months. If you save up before you go, this won’t happen.

What do you think the worst kind of debt to have is?

What are your thoughts on the worst kind of debt to have? Have you ever had a payday loan or vacation debt? Tell me in the comments!

February 15, 2022 Debt, Making money

Finding extra cash to pay off debt

Photo by Sharon McCutcheon on Unsplash

This month I’m focussing on paying off debt! Over the past two weeks, I’ve talked about how to figure out how much you owe and determine the best approach for you to pay off your debt!

I understand – you’ve already put so much work in just taking care of steps 1 and 2. But you’ve made so much progress – so keep pushing on! Now you know how much you owe and how you want to pay it off – the next step is to figure out how you’ll come up with extra cash to pay off your debt faster.  There are two main ways to come up with extra cash:

  1. Earn more
  2. Cut back

I’ll put my suggestions below – and I’d love to hear yours.

1. Earn more

While there are definitely drawbacks to living in a “gig” economy, the good news is this enables you to find easy options to earn extra money.  Here are some:

  1. Driving – all kinds of choices here. You can deliver packages (Amazon), food (GrubHub) or people (Uber)
  2. Paper route (yes, they still exist)
  3. Temp agency – Find extra work for your days or evenings off
  4. Surveys – more details in my post here
  5. Sell stuff – more details in my post here.
  6. If you’re creative – you can try to sell things on Fiverr or Etsy.
  7. Rent out a room on Airbnb.

There are lots to choose from here – just depends on your skills and resources.  (e.g. if you don’t drive, then working for Uber is not going to happen :)).  Also, think about what’s reasonable for you – if you live in a major city, the stress of delivering packages or food may not be worth it!

2. Cutting back

You’ve figured out a few ways to bring in some extra bucks – but you still want to throw more at your debt. Now it’s time to figure out if there are any areas to cut back in:

  1. Daily expenses – I know everyone always tells you to cut back on your daily coffee. But sometimes, you truly need that coffee trip to keep your sanity! You can consider less expensive coffee or buy it once a day instead of cutting it out altogether.
  2. Bigger expenses – take a look at how many streaming services you have or if you’re truly using cable TV. I’m not advocating you cut your entertainment options down to nothing. BUT if you have 5 streaming services, you may be able to do without 1 or 2 of them!
  3. Renegotiate! Call your cable or credit card company and see if you can get a better deal or lower interest rate. This is one of the quickest ways to save money without sacrifice.
  4. If you have good self-discipline, you can consider transferring your balance to a 0% interest credit card. You have to be sure you won’t run up a balance on your new card or, worse yet – not pay it off before the 0% rate ends, and you get hit with a huge charge!

Moving forward

You may find it easier to cut back than earn more money – after all, we all have a lot of interests and responsibilities outside of our main jobs, so taking on more work may just not be an option for you.  I think you’ll be able to find 1 or 2 things on both my lists that work for you and will help you start paying off debt that much faster!

Happy earning or saving – or both! Let me know what approach works for you in the comments!

 

 

February 1, 2022 Debt

Debt Avalanche vs Debt Snowball – which is right for you?

Photo by Holly Mandarich on Unsplash

Last week, I covered the first step in paying off your debt – knowing just how much you have! The next step is figuring out how you are actually going to pay off the debt! Next week, I’ll talk about finding extra money (whether it’s through earning it or cutting back), but this week I’m going to talk about figuring out what approach to paying debt is best for you. I’ll cover two of the most popular strategies:

  1. Debt avalanche
  2. Debt snowball

1. Debt Avalanche

With the debt avalanche route, you first target your debt with the highest interest rate. You don’t target the debt you owe the most (or even the least!) on – instead, you target the debt you are paying the most interest on.

For example – you have two credit card balances:

  • On Card 1, you owe $5,000 at 10% interest
  • On Card 2, you owe $2,000 at 20% interest.

With the debt avalanche approach, Card 2 is now your priority to pay off, even though you owe more on Card 1 than you do on Card 2. If you can put an extra $100 over the total minimum you are paying on Card 2, you will pay off Card 2 much faster. Once you have completely paid off Card 2, you can then put that extra money towards Card 1.

The main advantage of going the debt avalanche route is that you are saving more money by first tackling debts with the highest interest rate. So the debt avalanche route is excellent if you are concerned with paying as little interest as possible.

1. Debt snowball

With the debt snowball route, you prioritize your smallest debt, no matter the interest rate. For example, you have three credit card balances:

  • On Card 1. you owe $5,000 at 10% interest
  • On Card 2, you owe $2,000 at 20% interest.
  • On Card 3, you owe $1,000 at 5% interest.

With the debt snowball approach, pay off Card 3 first (throwing any extra money at it that you can), even though the interest rate on Card 3 is lower than it is on the other two cards. After you have paid the balance on Card 3, you move on to Card 2.

The main advantage of the debt snowball route is that you get the “win” of paying off debt quickly. So the debt snowball approach is great if you need a constant boost to help keep you on track.

What’s best for you?

That depends on your personality! If you’re the kind of person who needs to have a quick “win” in order to keep yourself motivated, then I recommend the debt snowball approach. If you hate the idea of paying extra interest and know you can keep yourself motivated, then the debt avalanche is the route for you!

To get started, check out this great calculator that can tell you how fast you’d be out of debt using each approach. No matter how you pay off your debt, you’ll feel better the sooner you get started!  Tell me in the comments which route you prefer!

 

 

 

 

 

 

January 15, 2022 Debt

Figuring out how much money you owe

Welcome to step 1 of debt month – figuring out how much money you owe. It’s important to do this, even if you think it’s going to scare the heck out of you! The longer you ignore it, the higher your debt will be – and the scarier the final total will be!

So it’s time to buckle down and figure out just how much money you owe. There are two main steps to this:

1. Figuring out all your debts.

2. Recording details about them such as amount, payment date, etc.

1. Figuring out all your debts

Yup, all of them! Try to think of it as a treasure hunt for adults, with the eventual prize being peace of mind. In order to do this, you need to track down information about all your debts.

  1. Gather any paper copies you have of unpaid bills, student loans, mortgage payments, due, etc.  Basically, any record that shows who you owe money to and how much.
  2. If you don’t have hard copies, go online and print out the information you’ll need (payment amount, the overall amount due, payment due date, etc.). It may seem wasteful to print out the information you can access online, but having a copy of ALL your debt information in one place will help make sure you don’t miss anything.
  3. If you don’t have either a paper copy or an online copy you can print out, or that information is out of date, you may need to make some phone calls. It may take time to track down details on student loans, but persevere – and make sure to take notes so you have all the primary details about your debt recorded.

Now you’re ready for step 2.

2. Recording details about your debt

The good news is – you’ve done the hard part. You’ve gathered all the information you need to figure out how much you owe. Now you have to record details about you owe. I suggest you do it in a spreadsheet or Word document if possible as it’ll be easier to update, but if paper and pen work better for you, then go that route. You need to record the following information about your debt:

  1. Who you owe it to (e.g. Bank, Credit Card company, etc.)
  2. How much you owe overall – e.g. your entire mortgage amount, your entire student loan amount, etc.
  3. What interest rate you’re paying on it.
  4. What your monthly payment is for your debt.
  5. How much your monthly payment is.

After that – put together a total of how much you owe overall (e.g. 200,000 on a mortgage, 40, 000 on credit cards etc.) and how much you owe each month in total monthly payments.

Now what?

You’ve collected information about all your debts and recorded them in one place. You know how much you owe overall, and how much you owe in monthly payments. Now comes the next hard part – figuring out how you’re going to start paying your debt off.  I’ll cover that topic next week, so stay tuned!