It is late-January and the bills are starting to come in. You’ve racked up some extra debt over the holidays. How will you manage all the bills, take care of the financial needs of your family and still have money left over to have fun?
Equifax Canada reported a few months ago that Canadians were carrying more debt than a year prior – that’s before the holiday season. However, consumers seem to have a good handle on paying it off. So if you’re concerned that you’re the only household in a mess, know that you’re not alone. Here are some tips for paying off that that extra debt fast and free up cash for fun activities.
Make some extra money
The extra income will help you pay off debt fast. If time doesn’t allow you to get a part-time job outside the home, consider making a little extra cash from home. Perhaps you can turn a hobby into a second source of income. Perhaps you can sell off some items that have been gathering dust in the garage. Did you receive some gift cards for stores you never visit? Sell them at a discount. Grab your piggy bank and start rolling all that coin you’ve thrown in there over the past year.
Change spending habits in the short-term
It’s time to scale back on budget items. You can tighten up the grocery budget, put memberships on hold, and browse the movie collection at the library for some free indoor winter fun. Look at the other expenses and see where you can trim. If you really want to pay off your debt fast, reduce that entertainment budget to $100 a month and come up with creative ways to enjoy yourself without it costing you.
Use your holiday bonus
If you got one, consider using it toward paying off debt rather than spending it on a vacation or other luxury purchases. I know, you worked hard to get it, but you’ll be less stressed in the long run.
Downsize to one car
This may be a tough to do, but if you’re a two-car family, think about the costs of getting rid of one. The savings are enormous. Test this idea out first by parking one car, dropping the insurance down to pleasure only and take the bus, car pool or walk to work.
This doesn’t actually reduce debt but it can make monthly payments easier and if the loan has a lower interest rate than a credit card, then you’ll save dollars in the long run.
Refinance your mortgage
This is a better way to consolidate debt if there is enough equity. Mortgage rates are low and the increase can be amortized over the life of the mortgage. The only caveat here is: don’t acquire more debt. If refinancing works for you, make sure to create a budget because you don’t want to borrow more if there’s an emergency and then end up having to refinance again. Always consult a professional before making a big change to your mortgage and financial plan.
Life insurance loan
If you’ve been paying into a life insurance policy that has built up a cash value, check to see how much is available to you. You won’t be cancelling your policy but many companies will let you borrow the cash that’s been accumulated. You can decide to pay it back or not. If you don’t pay it back, then the face value is reduced by the loan amount if something should happen.
If, after reviewing your situation, you think you’re in over your head, then talk to a credit counselor. Find out what debt reduction programs are available to you and what your options are. Don’t despair, there is a solution for everything.