Is Debt Delaying Your Marriage? Debt Reduction Can HelpApr 21, 2017
Debt reduction is a goal for many Canadians. In fact, it is usually the top financial resolution every new year. Yet, Canada’s debt-to-income ratio now sits just below $1.70 for each dollar of disposable income earned, and this ratio doesn’t seem to be decreasing any time soon. So, why is it so hard to stick to the resolution and pay off debts? For one thing, low interest rates might tempt people to borrow more, even when they are having trouble managing their current debts. Also, many people equate paying down debt with sacrificing their lifestyle when in fact, the opposite is true. Paying off debts can actually enhance your lifestyle by eliminating money stress, allowing you to meet more milestones and giving you more options to save and plan ahead. Not to mention that paying off debt frees up more money which can then be spent on other things.
How to pay down debt with minimal sacrifice
Couples who share the same financial ideals are less likely to have conflicts. It helps to discuss which financial goals are most important and then organize them into short, long and medium time-frames. If you’re hoping to choose a wedding date but your consumer debts are keeping your money tied up, repaying debt might be the highest priority. Here are some ways to start making debt a priority:
Choose DIY debt relief. The debt avalanche method suggests that you pay as much extra money as possible to your highest-interest balance while maintaining minimum payments on your other debts. This method will free up cash as you pay down debt because you’ll be saving interest. An alternative to this is using the debt snowball, in which you’d pay down your lowest debt first and then work your way up.
Budget together. A budget can help you both keep an eye on spending, plan for upcoming expenses and reduce unnecessary purchases. Use a budget worksheet to get started. In addition to budgeting, saving regularly will help you reach your goals faster. Automate your savings and bill payments so you can save time as well as money.
Set SMART goals. Planning a wedding, buying a home or paying down debt takes time and patience. Use a financial goal calculator to help you plan goals that are Specific, Measurable, Achievable, Realistic and Time-framed.
Strike a balance. Making debt your main focus could possibly cause you to burn out and actually hinder your debt reduction efforts. Instead, take a balanced approach between debt relief and savings. Spend a little money on things that bring you the most joy and reduce costs in other areas. For example, if you and your partner enjoy food, you can spend on ingredients for nice meals and cook together. Then, save money by taking lunches to work or maybe kicking the coffee shop habit.
Have “The Talk” about finances. Regularly discussing finances and setting goals together are good ways to practice communication and strengthen your relationship. Discuss how much debt each of you have and pool your resources to reduce your debts before marriage. You may want to consider speaking to a debt professional who can explain all of your debt relief options such as debt consolidation, budgeting, consumer proposals or bankruptcy. A Licensed Insolvency Trustee is a certified professional who can recommend a wide range of debt relief measures and discuss the advantages of consumer proposals vs. bankruptcy. A credit counsellor can also provide financial education classes to help you prepare for your lives together.
Is debt reduction a goal for you and your partner? Compare your debt relief options by using the BDO debt repayment calculator. Share your progress with others using the Twitter hashtags #LetsTalkDebt #BDODebtRelief