Simple Tips you can use to Start Reducing your Debt Load todayPosted on by John Haralovich
It’s no secret that discussing debt is an uncomfortable topic for many people. It conjures a litany of emotions around having lost control and, yet, it is a critical consideration in maintaining stable house-hold finances. Indeed, the ‘debt-to-income’ ratio is a fundamental factor that creditors look at when lending money and it is a critical snap-shot of your financial health. The ratio compares your gross monthly income to your overall debt. The higher the ratio, the more unstable your finances are and the greater the risk you represent to creditors.
For most of us, debt accumulates far too easily for many different reasons; student loans, emergency car repairs, family vacations, unforeseen expenses, health issues, and many more. So it’s important to know what your debt ratio is as creditors will use this “score” to evaluate your creditworthiness ie. ability to pay back a loan.
In our current economy, it has become much harder for Canadians to reduce their debt load and improve their overall finances because there are only really two ways to do it; increase your income, or reduce your total debt. As increasing income is not always a viable option, reducing your debt load becomes a practical solution for a healthier debt ratio score.
Taking steps to reduce your total debt starts with things as simple as evaluating where your money is going every month, and figuring out little changes you can make to shift outgoing money away from expenses in a way that will have little or no impact on your actual daily life, then moving the money you saved towards any high-interest debt to help bring it down faster.
Many of us are reluctant to start ‘cutting’ things from our monthly budget, simply because we are accustomed to them, they make our day-to-day routines easier or make us more comfortable. One way to approach the problem with a more accommodating solution is to figure out substitutions that impact your monthly cash flow more positively, instead of simply ‘going without’.
Some examples you might want to consider are:
Alter your cable TV package to cut out the channels you don’t watch. Often simply asking for loyalty incentives can reduce your monthly bill, especially if you bundle services.
Seek out digital sources for the material you typically get from print magazines or newspapers. Many times they are free or at much lower cost, and can be accessed virtually anywhere.
Start carpooling with co-workers or friends. Taking turns and sharing the costs benefits everyone in the car. By spreading the advantages around you can gain even more.
Clear the clutter & post easy-to-sell items you no longer use or need on sites like Craigslist or Kijiji. Listings are free, and most people will pick-up their items, resulting in no cost or inconvenience to you.
While these simple steps are certainly not daunting, and are easily achievable by virtually anyone, it’s important to keep in mind that improving your debt-to-income ratio is a long-term activity, and it won’t happen overnight. Set a reasonable and achievable goal for yourself and use that as the yardstick to measure your success. Always know that the benefits of putting effort in to improving this important measure of financial stability will definitely be worth it in the long run. Not only will it give you peace of mind knowing that your debt is going to become more manageable, it also puts you in a much better position when those big future purchases, like a new home or new car, need to be approved by a lender.
Of course, these budgeting and money management tools may not help you deal with a serious and unexpected shock to your finances, such as a job loss, illness or relationship break up. When confronted with these types of situations, or when it is becoming hard to make the monthly bill payments, seeking immediate help offers the best means to take control and end your stress. Having every debt relief option explain to you in a no-obligation and complementary assessment allows you to determine the best solution for you and your family and the quickest means to regain control.