Uncomfortable with Your Debt? Changing Your Mind Can HelpJan 23, 2018
Only four in 10 Canadians are comfortable with their current debt level, yet consumer debt loads continue to rise. Paying off debt is also the number one financial resolution Canadians make each year, with only 1/3 meeting their debt repayment goals.
So why do so many people struggle to stick to their debt repayment goals? Perhaps one reason is they need to rethink how they deal with their debt and feel about their debt.
How are you coping with debt?
The way you’re dealing with debt can have a lot to do with how you will repay it, but it can also have a ripple effect in other areas of your life. Ask yourself:
- Are you dealing with long-term debt such as student loans, mortgage or HELOC?
- Have you resigned yourself to always be in debt?
- Is debt affecting your sleep, emotional state or relationships?
- Are you just scraping by each month due to heavy bill payments?
Dealing with heavy debt, or long-term debt can alter your thinking by making you feel like debt is the norm. If you feel like your payments aren’t making a difference, why bother, right? Wrong. In fact, this is how debt keeps you caught in the cycle of borrow, pay, repeat, over and over again.
How to break the cycle and stop relying on debt
This year, instead of thinking in terms of New Year’s resolutions, think in terms of forming new habits. Don’t think of your debt as a mountain you can’t climb. Focus on what you can do right now without overthinking it. Here are some ways to break the cycle and focus on small changes:
- Automate your bill payments so you aren’t paying late fees.
- Build and follow a budget using a printable spreadsheet or an app like Mint or Wally.
- Learn something new about money or debt management with the help of the Financial Consumer Agency of Canada’s Financial Toolkit (FCAC).
- Take some time to compare your debt relief options using this repayment options calculator.
- Build an emergency fund by setting up direct withdrawal from your account into a high-interest savings account.
How to set yourself up for success
Krystal Yee from the personal finance blog, Give Me Back My Five Bucks, talks about the importance of having an emergency fund to rely on so you can avoid future debt. She began by saving only $25 per month and 6 years later, reached her goal of a $10,000 emergency fund to lean on without taking on debt. This is a great example of how small changes can equal big results over time. The key is perseverance, patience, and sometimes, revising your plan.
Here are a few ways to stick to your goals and set yourself up for long-term success:
- Take the SMART approach to goal setting
The FCAC uses a helpful module to explain why it’s important to make each financial goal specific, measureable, achievable, realistic and time-framed (SMART). This method will allow you to reach smaller goals while staying motivated to reach larger long-term goals such as saving for retirement or a home.
- Recognize when you need help
Debt repayment can be daunting. If you’re having trouble managing debt, seek help by speaking to a debt professional such as a credit counsellor or Licensed Insolvency Trustee (LIT). They may suggest debt consolidation, a debt repayment plan or possibly a consumer proposal in some instances, which can help with your repayment efforts.
- Learn from your mistakes
Don’t let your mistakes define you. Look at your past habits to guide you and set markers along the way so you can see how far you’ve come. One great visual way to track your debt repayment is to print off these helpful debt progress charts.
- Reward your efforts
Paying down debt over a long period of time can feel like a monotonous chore. Allow yourself rewards once you reach your goals. A night out, a new piece of clothing, or just an afternoon to relax. It’s important to celebrate your successes along the way.