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.

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

7 Ways to Eliminate Debt

Reducing or eliminating your debt can see like an insurmountable task. You may feel like you can never get out of debt but you can. Other financial experts have been $100,000 to $1,000,000 in debt. I was $19,000 in debt making $21,000 a year and got myself out of debt. If we can do it you can too.

First, you have to admit you have a problem. Then you have to be committed to getting out of debt, just like you are committed to going to the gym, going to the hair salon or barbershop, or going shopping. Here are 7 ways to help you manage your credit card debt or any type of debt.

1. Stop spending. Don't spend money you don't have. This will result in your owing more money. Use your credit card for emergencies only.

2. Educate yourself. Educate yourself about credit and your credit rights. Read as much information as you can about credit cards. Start by reading the credit card agreement or disclosure that was sent to you when you first received your credit card in the mail.

3. Setup a debt payoff plan. Setup a debt payoff plan to prioritize your bills. By using the debt snowball method you will be able to quickly pay off some of your debts. Start by paying off the smallest bills first, then use the money paid towards a previous bill and apply it to the next bill and continue this process until all your debts are paid.

4. Setup a payment plan. Setup a payment plan with each of your creditors to pay off your debts. Be honest, humble and sincere. Identify any terms and negotiations you would like to make and stick to the terms.

5. Pay more than minimum monthly payment. If pay the minimum monthly payment you will end up paying 2 to 3 times what you actually charged due to the interest and finance charges that accrue on your balance. Try to send extra towards your balance each month.

6. Don't transfer balances. Transferring balances to another credit card may lower your credit score and there may be fees associated with transferring the balance. It is important to pay off the full balance before the introductory rate special ends because after the introductory rate ends the interest rate may drastically increase.

7. Pay with cash. Pay for purchases with cash until your credit card balances are paid in full. If you pay for an item with a credit card you end up paying 112% the original cost of the item.