Debt Free Canadians and What Americans Can Learn From Them

                                                                      

According to an annual RBC survey more Canadians are living debt free this year compared to 2011.  The survey found that 26% of respondents had no personal debt - excluding mortgage debt in 2012.  However, the survey found that on average Canadians are carrying $13,141 in non-mortgage debt. The survey found that 51% of respondents feel it’s more important to pay down debt instead of saving and investing for the future.  

 Unfortunately when you are paying down debt the worst thing you can do is skip saving. It doesn’t matter the amount as long as you save on a recurring basis even if it is $5 a week, save something as a starting point and then gradually increase your contribution to save more.  The survey also found that 76% stated they are doing better financially than their neighbors. 

According to a survey by the Canadian Association of Accredited Mortgage Professionals 83% of Canadians have at least 25% equity in their homes.  Homeowners are making substantial efforts to get out of debt early – 23% are increasing their monthly payments, 19% are making lump-sum payments and 10% are doing both.  The average outstanding principal is just $170,000.  Approximately 3.75 million Canadians are mortgage-free.  The results show that Canadians are focused on reducing their debts amid government warnings about rising household debt.

According to Christina Kramer, CIBC executive vice-president of retail distribution, ``Debt management is top of mind for Canadians, and these poll results show that many Canadians are taking steps towards reducing their debt,'' said.

Americans borrow money for various reasons and many times think about the consequences later or not at all.  In other cases Americans are in debt because they were impatient, acted on impulse, didn’t comparison shop or didn’t read the fine print.  The easiest way to get out of debt is to make getting out of debt your top priority.  Making a become debt free also requires developing financial goals that you want to achieve after you get out of debt such as:  paying for college, planning for retirement, starting a business, buying investment property, purchasing a home or investing in a profitable business.

Becoming debt free takes a certain mindset and skills. You must have patience, organization skills, negotiation skills, discipline and fortitude.  If you don’t have these skills, don’t worry after a few discussions with your creditors you will learn a great deal about what works and what doesn’t work.

Paying down debt shows who you really are.  You true character surfaces when you are struggling with debt or facing a financial crisis. 

Being in debt steals your peace of mind.  Each time you make a payment to a creditor you are stealing money from yourself and making your broke. Being in debt prevents you from having financial security and being able to take advantage of opportunities such as buying an investment property or starting a business. Here are 17 ways to become debt free.

1. Create a budget. Create a budget use pen and paper, a spreadsheet or an online tool such as mint.com.
2. Sacrifice. Getting out of debt will require great sacrifice and commitment.  You may have to downsize or downgrade your lifestyle at least until your debt is manageable. Changing your lifestyle is only a temporary state until you get your finances in order. However, once you do, don’t make the same mistakes that got you into financial trouble.
3. Thankful.  Be grateful for what you do have and not for what you don’t have.  Don’t worry about what someone else has and don’t compare yourself to others.  Don’t worry about what other people think. The people who make negative or hurtful comments about your situation are probably going through the same thing you are or worse. But you were smart enough to do something about it.
4. Prepare for the unexpected. Develop a Plan A, B and C with an action plan to handle certain unexpected events that may arise such as illness, death, divorce, unemployment, reduce pay or benefits, etc.
5. Create a debt payoff plan. Prioritize your debt by listing each company, amount owed, monthly payment, interest rate, and create a target date to pay off each bill.  Prioritize your debt from the smallest bill to the largest bill and begin paying off each bill one at a time.  If you are able to pay multiple debts at the same time do so.
6. Move.  Consider moving to a small home or apartment.  If you live in an apartment consider renting a room or moving back home with your parents even if it’s just for a few months.
7. Create an emergency fund. Create an emergency fund of savings to cover all of your monthly expenses for 9-12 months.
8. Reduce Expenses. Consider reducing spending 30-50% until you debt becomes manageable.
9. Use Extra Money.  Get a part-time job or find ways to earn extra income to help pay down debt. Once the debt is paid off you can use the extra income to help you achieve your financial goals. 
10. Adjust Taxes.  Adjust your withholdings for 6 months to increase your paycheck instead of getting a lump-sum tax refund at the end of the year.
11. Be Accountable.  Get a friend, relative, co-worker, mentor, life coach or credit counselor to help you become accountable and ensure that you remain on track to pay down your debt and save.
12. Reward.  Once you reach a financial goal feel free to reward yourself by going out to eat or buying yourself something but don’t go overboard. Pay for the item with cash and try to limit the cost to $100 or less.
13. Make debt a bill.  Make paying debt a part of your budget and treat it as a household bill.  Pay necessary expenses first and then pay debt. Any money left over can be used for extras or fun stuff.
14. Automate. Setup online bill payment.  Setup automatic payment or paycheck deduction to contribute money to a savings account on a recurring basis.
15. Pay Debt Faster.  Pay at least double or triple the minimum payments or more when possible to pay down the debt faster. You can also send multiple payments a month to pay down the debt.
16. Encourage. Encourage yourself and ask your accountability partner to encourage you.  This will help you during the rough times and help you stay on track to achieve your goals.
17. Target. Set a target date when you want to become debt-free, preferably before retirement age.

There are many benefits to paying off debt: no more fights with your partner, less stress and anxiety, money available for unexpected expenses and the ability to retire earlier.  Getting out of debt and staying out of debt requires you to save money no matter how much you make.  Cutting back on expenses helps but if you don’t have a savings account you will continue to struggle.  The bottom line is everyone should stop what they are doing and focus on paying down debt and create an ultimate goal of being debt-free.

Think Twice About Transferring Credit Card Debt

Credit card companies make it so easy to transfer one credit card balance to another and at the time it may seem like the best option, but use caution. Transferring your balance from one card to another is basically the same as consolidating your debt without actually going through the process of a formal debt consolidation loan. Transferring balances may actually lower your credit score because it could be an indication that you are unable to manage your money and need to transfer your balance to make it easier to pay your debts.

The only reason you should transfer one credit card balance to another card is to save money and reduce your total debt owed. To take advantage of the low introductory you must pay off the full balance before the introductory rate special ends. If you are unable to pay off the balance before the introductory rate ends the balance transfer is not worth it. Do some comparison shopping before selecting a credit card that offers an introductory balance transfer rate. Two good sites to use when comparison shopping are bankrate.com and cardreport.com.

You may end up in more debt than you originally owed due to the guidelines of the new low interest credit card. To pay the new balance off faster you must pay more than the minimum monthly payment; try to pay at least double the minimum monthly payment. Here are 9 tips to use when considering transferring debt to another credit card.

1. Find out the APR or interest rate of the new card, if the interest rate is too high don't transfer the debt.

2. Ask if you will be charged a fee for transferring your balance, if there is a charge shop around for another credit card.

3. Find out what the guidelines are for the new card.

4. Find out how long the balance transfer will take and make sure you continue to make payments on the old account until the transfer is complete.

5. Check your monthly statement to verify that your old credit card company is reporting your balance as zero. But don't be tempted to charge on the old account.

6. Check your monthly statement on your new credit card to verify the balance is reported correctly. If not, write a letter to have your account balance updated.

7. Some companies offer transfer checks that can be used to transfer balances. Some companies charge a fee for using the transfer checks so keep this in mind when adding up all the fees that can come along with transfer of an old balance to a new credit card.

8. Ten percent of your credit score considers new accounts and your score may decrease as a result of opening the new account. If you decide to close the old account, the account was in good standing and you had the account for at least 2 years closing it could decrease your credit score.

9. If you know your credit score from each of the three major credit bureaus Equifax, Experian and TransUnion call each bureau and ask how transferring your balance to a new card will affect your score.