How to Reduce Debt With a Plan, Not a ResolutionJan 17, 2019
January can be a real reality check for your finances.
The holidays are over and, for a lot of Canadians, all that festive joy cost more than their budget allowed. In fact, a pre-holiday survey from Manulife found that over half of Canadians who have a holiday budget expected to overspend. On the upside, that extra consumer debt from December can be the motivation you need to reduce your debt and get your finances on track in the new year.
This is not the time to set lofty or unachievable New Year’s resolutions, but rather to build an effective plan that will help you reduce debt and achieve your financial goals.
Does that sound like an overwhelming task? Really, it’s not as difficult as you might think. Take it a step at a time.
First, perform a financial review
In order to create a plan, you need a full understanding of your current financial situation — your net income and total savings, along with your monthly expenses, bills, total debt owing, etc. Our online budgeting worksheet can help you create this detailed breakdown and makes
the task a bit easier.
Why not perform a financial health test while you’re at it? These 10 questions can help you determine if you need help getting your finances on track and debt under control.
Second, create your financial and debt reduction goals
You need to know what you want to achieve this year. Goals are the finish line that help you build a financial plan. A key to establishing goals is keeping them achievable — this will keep you motivated to create and tackle the next goal.
It’s important to think about what you want to achieve.
Do you want to pay down (or pay off) your credit card debt?
Do you have want to save more for retirement, emergencies or even a vacation?
Do you need extra funds to cover a maternity or paternity leave in your near future?
Would you like to save up for your wedding or a new house?
If you have multiple goals, prioritize them into short, medium and long-term goals. You’re not going to be able to save for your entire retirement in a year, but depending on your debt load you could pay off those two credit cards that are eating away at your income every month.
Now, build your goals into your monthly budget
Whatever your financial goal, it’s your monthly budget that will help you achieve it. Check out these resources on building budgets and use the information you learned from your financial review and goal setting session to guide you in the budget process.
- Making a budget | Financial Consumer Agency of Canada
- Build a budget that works | Gail Vaz-Oxlade
- One Simple Way to Kick-start Your Money-Saving Habits | HalfBanked.com
- 30 Tips On How To Save $1000 A Year | YummyMummyClub.ca
Finally, stay committed to the plan
Best intentions are great, but without resolve and single-mindedness they are destined to fail. Similar to how New Year’s resolutions never stick around long. This will be the hardest part of the process, but it’s the only way to get your goals across the finish line.
You’ll need to adjust spending habits, focus on saving, put extra money towards paying off debt and review your plan and budget monthly. The longer you stick to it, the more it will become just an everyday routine and the more successful you will be at achieving your goals to reduce debt and save.
Share your most effective tips when it comes to spending less with us and others on Twitter using #LeaveDebtBehind or #DebtTips.