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.

A Free Way to Get Out of Debt

If you are struggling with debt and don’t know where to turn try consulting self-help books such as my book, “How to Get Out of Debt: Get an “A” Credit Rating for Free by Harrine Freeman, published by Adept Publishers. My self help book talks about personal finance topics such as:

1. Warning Signs of Bad Credit
2. How to Create a Spending Plan
3. Life After Bankruptcy
4. Women and Their Credit
5. Increasing Your Credit Score
6. Keeping Good Credit
7. Dealing with Creditors
8. Identify Theft

My book also contains sample budget spreadsheets and sample letters to setup payment plans with creditors and fix errors on your credit reports. My book also contains tons of resource information listed by state as well as information on your rights as a consumer.

My book has been previously featured in Essence, Black Enterprise, Ebony magazines, Market Watch, Wall Street Journal, the Michael Baisden Show, Yahoo.com, Bankrate.com, and Creditcards.com.

My book is available at all major bookstores (Borders, Barnes & Noble, Walden Books, B. Dalton). For more information about my company visit hefreemanenterprises.com.

5 Ways to Keep Debt Manageable

Many people live above their means, shop on impulse or have no idea how much debt they owe. We are a debt loving society and because of our bad spending habits many Americans haven't gotten into so much debt they do see any way out. The first step to getting out of debt is to admit that you have a problem. Then you need to make some sacrifices. Change doesn't happen overnight and getting out of debt won't happen overnight either. Here are 5 ways to keep your debt manageable.


1. Create a spending plan or budget
2. Pay balances in full each month
3. Use automatic deduction or online bill payment
4. Use your credit card like a debit card
5. Pay loans off in 3 years or less
6. Pay mortgage loans off early

Don't Pay for Someone Else's Debt

When a financial crisis occurs many people often become victims of scams and get taken advantage of because they don't know their rights and allow fear to cause them to make bad decisions.

Companies take advantage of many consumers by using guilt and fear. Don't take responsibility for a debt you do not owe because once you do; you are bound to that debt and will have to pay it.

Many companies are desperate for business and are looking for someone, anyone to pay back an old debt. Companies are now reaching out to relatives and friends of the deceased to try to recoup money for delinquent debts.

Based on the Fair Debt Practices Collection Act by law you are not required to pay a debt that does not belong to you unless your name is on the account as a joint account holder or authorized user.

A creditor can only contact you for payment for a debt of a deceased spouse or parent who had an estate or any assets worth value, i.e. an inheritance, a banking account, boat, car, home, stocks, bonds, or other assets. The money owed to the creditor is paid by the estate after any money owed to the government is paid first.

To protect yourself in that situation, get the caller's name, title, name of the company they are calling from and what they said. Tell the caller you will contact your attorney and then contact them if it is determined that money is owed to them. If you have any bank accounts or other accounts that are in the name of your deceased spouse or parent's name put them in your name to prevent creditors from garnishing those accounts.

If you feel you are being harassed tell the company to stop contacting you by phone and notify you in writing. Learn about your rights as a consumer at ftc.gov.

Balance Transfers: A Positive or A Negative

Many credit card companies make it easy to transfer credit card balances from one credit card to another offering a lower interest rate for a promotional period of time. After that promotional period expires you will be required to pay a much higher interest rate and any payments made will first be applied to the old debt.

Any future purchases will continue to accrue finance charges. Once the old debt is paid down then any payments made will be applied to the new purchases. You may say – what is the point, I don't see the benefit.

Well, for those Americans who are struggling to pay down credit card balances with interest rates of 17%, 21%, 25% or 32%, a balance transfer is a reasonable option but should not be your first option. You should try to negotiate with your creditor to get a lower interest rate at least temporarily. If your creditor refuses to work with you, you can file a complaint against the creditor. To save time and money you can transfer the balance to a low interest credit card.

Remember that each time you open a new account it counts towards your credit score and if you have opened more than 1-2 accounts in a 24 month period your credit score will slightly decrease. However, once your debt is paid down to 30% or below the credit limit your credit score will increase.

Transferring credit card balances may also lower your credit score because it is an indication that you are unable to manage your money. The biggest mistake made with transferring credit card balances is not reading the credit card agreement to find out all the terms and guidelines associated with the credit card.

The key to balance transfers is to pay off the transferred balance before the promotional period ends and use the card only occasionally for small purchases paying the balance off in full at the end of the month to prevent paying high finance charges.

Do some comparison shopping before selecting a credit card that offers a balance transfer. Some good sites to use are bankrate.com and creditcards.com.

Here are 5 reasons to transfer a credit card balance to another credit card with a lower interest rate.

1. If your current interest rate is higher than 12%
2. If you are struggling to make the payments due to late fees, over-the-limits fees and finance charges.
3. If you know you will be able to pay the debt off before or by the end of the promotional period.
4. If you are have at least an average credit score of 650 or above and can get approved for a new credit card.
5. If you are serious about getting out of debt.


The goal is to get out of debt and the fastest way to get out of debt is to pay more than the minimum monthly payment.

Paying Medical Debt

Medical debt is one of the reasons why Americans file for bankruptcy. Every year many Americans file for bankruptcy due to medical debt. In 2008, 46 million Americans did not have any health insurance coverage.

Many people are uninsured due to the high costs of medical coverage. Many employers only pay a small portion of healthcare costs leaving the remaining expense for the employee. It is expected that 1.4 million Americans will file for bankruptcy this year, and some will be due to medical debt.

Health care costs continue to increase each year. According to the National Coalition on Health Care, in 2008, total health care costs increased approximately 6.0% - almost twice the rate of inflation. In 2008, employer health insurance premiums increased by 5.0%. The annual premium for an employer health plan covering a family of four averaged nearly $12,700 versus $4,700 for individual coverage. Retiring elderly couples will need $250,000 in savings just to pay for the most basic medical coverage.

Many Americans file bankruptcy for various reasons such as job loss, illness, death of a loved one, disability, loss of coverage, divorce, and the additional medical fees associated with health care coverage such as co-payments, deductibles, prescription costs, COBRA costs, etc.

The problem is the lack of mandated regulations in the health care industry, industry fraud and billing errors. Health insurance companies over charge patients fees for services and if you do not have health insurance coverage you might as well sign over your child to pay for the medical costs because when you don't have insurance you can basically be charged whatever fee the doctor or hospital chooses. When you have health insurance you can only be charged a certain amount for services.

We claim to be the most powerful country in the world yet we are the sickest developed country in the world. We have the highest incidents of high blood pressure, diabetes, heart attacks, stroke, and cancer.

We should demand that full health insurance coverage is provided to all Americans no matter what their income or lack of income. You should not get better treatment or additional services simply because you have a higher income or can afford better coverage. Every human life should be valued but based on our health insurance industry it is not. We must fight back and force Congress to develop better laws to improve our health care industry and provide insurance for all Americans because we deserve it.