Debt feels like a hard burden to many people in Canada, especially during the challenging period we are now facing. Accumulating debt is a sneaky process that happens gradually and sometimes even imperceptibly. It can start with a credit card and continue with a period of diminished income, and the situation can quickly become tense. If you are struggling with significant debt, we have a list of seven helpful science-based strategies to help you get out of debt fast and efficiently.
Nobody wants to be in debt; it simply happens for various reasons. Truthfully, having a certain level of debt, and of a particular type, is not necessarily a bad thing. As long as you have a good and steady income, borrowing money to increase your life quality is understandable. The problem appears when you cannot rely on your previous income anymore and make the payments.
That was just an example; people can get into debt in different ways. What matters is keeping a positive attitude and knowing that you can do things to get back on track.
Getting out of debt is not an easy or fast process, but you can get over your financial impasse if you follow a few essential steps.
How Do Canadians Get Out of Debt with Bad Credit if they have no money?
Bad credit and no money are a challenging combination, especially when you also have significant debt. It’s not a hopeless situation, but you will have to take even more steps than the ones we have already covered.
The first thing to do is to contact your bank and see how they can help you. A debt consolidation loan can be the solution you are looking for; by cumulating your loans, you will pay less interest. You can also get a loan if you have a low credit score and use the money to consolidate and pay off all your debt.
If your debt is significant, you can turn to debt settlement, which would allow you to reduce the amount you owe. On the other hand, you will also completely shatter your credit score for seven years and eliminate any chance of getting another loan. If the debt isn’t that large, a payday loan from a private lender can be the best solution; you will get a cash advance to cover your debt and not let things get out of control.
7 Strategies for that can help Canadians get out of Debt Based
Out of the financial strategies, you have tried so far, getting out of debt is definitely the most challenging one. It’s not at all easy to pay the money you owe and, at the same time, be able to cover at least the basic expenses you and your family require every month. While definitely an arduous undertaking, with a little bit of help from science and a lot of determination, it is possible.
Here are the seven strategies that all Canadians can use to get out of debt:
#1 – The Budgeting Strategy
Budgeting should be the first step in conquering your debt. Even if it’s a long and challenging road, if you start by planning your expenses more thoroughly, you have higher chances to succeed. Setting a budget means carefully planning every future cost, prioritizing the crucial ones, and keeping all costs under control. All the other strategies we will present are based on this vital first step.
Budgeting is all about finding the right balance between your income and your expenses. The plan is to maximize earnings and cut the non-essential costs. The money you will save this way can then be used to pay at least a small part of your debt.
#2 – The Snowball Strategy
It was financer Dave Ramsey who created this strategy for getting out of debt. According to him, the best way to efficiently pay off your debt is by starting with the smallest one. You then make your way to the largest balance, taking it one step at a time, in ascending order. This strategy works because smaller debts are easier to pay off, and you get a satisfying feeling of having dealt with one problem.
Once the smaller balance is taken care of, you will have more money for the next one, and so on. Just like the snowball grows bigger rolling downhill, your payment strength will increase as you go from one balance to the next.
Another thing to try when using the snowball strategy is to divide your debt into smaller parts to make it easier to reimburse. A massive debt can be overwhelming, especially since it takes a lot of time to see significant results in paying it back. But if you take it one small balance at a time, you will get a more profound sense of progress.
#3 – The Avalanche Strategy
This strategy focuses on the interest rate instead of balance. That means the goal is to pay off the debts with the highest interest rate instead of those with the smallest balance. Unlike the snowball strategy, this one will take a while to show clear results, but you will be saving money in the long run.
High-interest rates mean more considerable expenses on your part, so it makes sense to get rid of those first. It will take longer, but if your goal is to reduce your debt and also save some money, this is the method to use.
#4 – The Emotional Debt Targeting Strategy
Considering emotions as strategic criteria may not sound that scientific, but the truth is the mental state is a significant factor in the process of reducing debt. Some Canadians may experience high-stress levels and even anxiety when we have to pay back the money we owe. The higher the amount, the heavier the psychological burden can be.
With that in mind, the best way to reduce debt and keep yourself emotionally balanced is to pay off the obligations in the order established by the emotion and anxiety they cause. Whatever installment or other types of debt generates the highest level of stress, get rid of that first; that’s what this theory advises.
#5 – The Documentation Strategy
This strategy is based on a thorough analysis of your financial behavior. It means you need to look through your records and document every expense to get an idea of what you did wrong or can be improved. Bank records are extremely useful, especially if you usually pay with your card.
The truth is many reasons got you into serious debt, and unnecessary expenses have a more important part than you may expect. The Financial Consumer Agency of Canada recommends that we all take a close look at your spending habits, you can adjust your costs and better manage your budget. That will help you pay off the debt faster and avoid getting into this situation again.
#6 – The Minimalist Strategy
This is probably the most efficient strategy for getting out of debt as soon as possible, but it’s also tough to follow. It involves cutting down expenses to the extremes and only leaving those you absolutely need to survive. It means you have to adopt an extremely minimalist living and not spend any money unless you have to.
You can pay for food, medicine, water, and take care of your monthly bills, but that’s all. You would need to prepare yourself for a period of survival, not comfortable living. But all the money you will be saving will go into paying your debt much faster. Not to mention you may change your spending habits in the long run, realizing many of your previous expenses were not necessary.
#7 – The Envelope Budgeting Strategy
This is a simple strategy that may seem a bit weird at first, but once you get used to it, you will see results soon. Here is how it works. You must list the expenses you need to cover that month and use envelopes to set your budget. Place the exact amount you need for each expense in the assigned envelope and not spend anything else.
This may sound like something your grandma would do, but it’s actually quite efficient. Having money in your wallet or a credit card available can lead to unnecessary expenses, and you will struggle to save money. But if you stick to the envelopes, you eliminate any extra costs, and you will pay your debt much sooner.
Sure, making a list and assigning the money for each bill and expense works too, in theory. But science has shown that it’s much more efficient to restrict your access to the money and only allow yourself to spend what’s inside the envelope.
How Canadians can Get Out of Debt with no Money
Having no money to spare but also a significant debt is a complicated situation. You want to reduce your debt as much and as soon as possible, but you don’t have any money available. It sounds like a dead-end, but, in fact, there are ways to get out of debt even when you’re broke.
Writing it all down on a piece of paper or your computer can really help. Creating a budget allows you to better visualize your situation and find the best way to adjust your expenses. Once you see where you stand, you will most likely find places where you can cut down on some costs and use that money to pay at least a small part of the debt.
Even if you’re broke, you can still adjust your spending strategy to get back on track. You still have the social benefits to help you, even if you cannot rely on a salary as you did in the past. That means that you must learn how to be even more careful how you assign every dollar and not spend money on something you don’t need.
Apart from reducing your expenses, it’s also crucial to avoid creating more debt. If you cannot do much about your debt for a period, at least make sure not to make the situation worse.
Part of your strategy for getting out of debt with no money is making efforts to find an additional income source. It can be a temp job, some online work, selling things you no longer need, whatever you can do to add at least some money to your carefully planned budget.
What Is the First Step to Getting Out of Debt?
Getting out of debt is certainly not easy, nor does it happen overnight. And most times, all that accumulated debt makes you so overwhelmed you don’t even know where to start. You may be surprised by the first step experts recommend. It seems the first thing you need to do to begin your getting out of debt journey is to save $1,000 as soon as you can and to set it aside as an emergency fund.
This strategy may seem a bit weird, setting money aside instead of using it to pay off some of the debt. But if you think about it, it makes sense. That reserve you create is meant to cover emergencies, which can happen at any point and get you in an even worse situation than you are now. That $1,000 you will have in your emergency account can genuinely make a difference and help you stick to your debt-reducing budget, even if you face urgent and unanticipated expenses. It means you won’t need to get deeper into debt to cover those costs.
What Is the Easiest Way to Get Out of Debt?
Now that you know what the first step should be, what to do next? We have already shown the strategies science suggests for getting out of debt. But you still need to choose the path that seems the best for you.
The easiest way to get out of debt is to identify all the things you can live without and not pay a cent for it anymore. Bringing your expenses to the minimum is the best strategy. It’s the most efficient way to reduce debt until you eliminate it, but it will be far from easy or comfortable. It will be a significant sacrifice, but getting rid of that stressful debt will be worth it.
What Can I Do if I’m Drowning in Debt?
That’s precisely the feeling massive debt can give you; you feel like you’re drowning. But with a few efficient steps, you can get that life jacket you need and slowly even get out of the water. It takes a lot of dedication and will power, but it’s possible. Apart from the steps we have already covered, here are the things you can try when debt becomes overwhelming:
- Put all forms of investing on hold. Except for that emergency fund, don’t place any money into investments until you manage to get as close to paying off the debt as possible.
- Avoid any new debt. That may be the most challenging part because you will have to manage all essential expenses with a meager budget. But it’s crucial to stop adding to that debt you are fighting to reduce.
- Don’t compare yourself to other people. It can be challenging to struggle so hard while your friends share the fun things they do and the stuff they bought. But yours is a situation that can happen to anyone, so don’t beat yourself up. When your debt is paid off, you will enjoy the things you are missing now.
- Negotiate your interest rate. Part of the burden you are facing can be a high-interest rate. But that is something you can improve by contacting your creditors or by refinancing your loans.
- Avoid late payments because they come with additional fees. As hard as it may be, do your best to make all payments on time.
- If possible, pay more than the minimum amount due; that will help you clear that balance sooner.
Can I Consolidate my Debt if I Have Bad Credit?
Debt consolidation can be the helping hand you need when you are drowning in debt, but it’s not that easy to get when you also have bad credit. Not easy, but not impossible. Indeed, some banks may require a certain credit score level to approve a debt consolidation loan, but it’s not a general rule. There are programs specifically designed to help people with poor credit manage their debt by consolidating it. As long as you find an efficient counselor, you can do it.
How Much of a Challenge Is Getting Out of Debt?
It’s definitely a significant challenge, especially if it’s a large amount. Not to mention sometimes, you may be facing a combination of factors that make the process even more difficult. But as we have shown, there is always something you can do to reduce debt.
Some steps are pretty obvious, others seem a bit strange, but if you find the right mixture and adapt it to your particular situation, you can pull through. It will take a lot of sacrifices and a strong will, but being able to say you are debt-free will be worth the effort
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