The pandemic has undoubtedly brought about a lot of change since it started 20 months ago. One change that might surprise you to learn is that during this time, many Canadians actually saved money. By having more disposable income because of government support programs, decreases in expenditures by working from home, and fewer places to spend, Canadians were able to save an additional 180 billion dollars – that’s $5,800 per Canadian!
You may be wondering what people have been doing with these savings? The truth is, a good portion have been paying down their debt. Over the past year, non-mortgage debt fell by a record $20.6 billion, mainly attributable to a $16.6 billion decline in credit card debt.
On the other side of the spectrum, many Canadians fell into financial hardship throughout the pandemic as their income was reduced or cut entirely. If you acquired more debt over the pandemic to supplement your income, keep reading. We’re sharing tips and debunking common myths to help you move past your financial hurdles and make change that counts!
Myth 1: I am too set in my ways to learn new financial skills
It’s never too late to learn the basics! A budget is key for proper money management, and it is the ultimate tool to help you make spending and savings decisions.
Knowing the monthly commitments for your income will help you determine how much you can put into reducing your debt. There are many tools that can help you with your budget, such as apps, spreadsheets and manual methods like the jar system.
Tracking what you spend is just as important as doing the upfront work of budgeting. This will give you a clear picture of what you are spending your money on and where you can find opportunities to cut back on those expenses. Be honest with yourself when doing this exercise; in the end, this is something that can help you be in control of your money.
Myth 2: There is only one way to pay down my debt
There are many ways you can prioritize paying down your debt, and not everyone will pay down their debts in the same way. That’s why having a plan to attack your debt is an important starting point!
The foundation of your plan will come down to personal preferences and what motivates you. Knowing the balances and payment terms of each of your debts is also crucial and will help you decide where and how you should prioritize making payments.
For example, you could focus on your higher-interest debt first or your debt with the smallest balances. Combining your debt under a personal loan at a lower interest rate can help you pay down the debt faster. A lower interest rate reduces the total cost of the debt. Another example of this is transferring credit card debt to a promotional credit card that offers a low or 0% interest rate. The key with this option is that you try to pay off the debt entirely while the interest rate is low or at 0% which is typically 6 months. Lastly, you can increase the frequency of your payments from one monthly payment to weekly or biweekly. You might find this motivating as the payments are smaller, but you are also putting more money towards the debt.
No matter what method you chose, in the end, it boils down to what will give you a sense of accomplishment. Remember, make sure you make the minimum payments on all of your credit products and stick to your plan!
Myth 3: Checking my credit report will hurt my credit score
Most people think checking your credit report can hurt your credit score. In fact, regularly checking your credit report is a good idea. By doing so, you can ensure your information is correct and it can even help detect signs of potential identity theft!
An individual can check on their credit score whenever they would like without affecting their overall score. You can receive your credit report for free at Canada’s two credit bureaus, Equifax and TransUnion. Most large Canadian banks now offer free credit report information as well, including outstanding balances, and this is available to their clients free of charge and without a penalty to their score. Half the battle is knowing what your debts are so you can plan to address the situation. Learn more about your credit score and how your debt might be affecting it.
Truth: It’s ok to ask for help
If you want to make a financial change that counts but feel overwhelmed and don’t know where to begin, reach out for assistance from a trusted professional like a Licensed Insolvency Trustee (LIT). We offer free personalized debt consultations that explore all relief options available to you and explain what each will look like given your specific situation. To book your free consultation, fill out our consultation form or call your local Grant Thornton Limited office.