January 5, 2019

An old-school perspective says that any debt is bad debt. In today’s world, that’s simply not true. In order to make your money work as hard as you do, debt can serve a very important purpose. Just think: purchasing RRSPs with a loan at tax time can solidify your retirement savings while reducing your taxable income. Mortgage interest rates are low, allowing you to build equity fast in your home. And credit cards can earn you rewards or dividends. It’s all about debt management.

Keeping yourself out of troublesome debt situations can be murky. Once you’ve dipped your toe in the pool, it can often be really difficult to get free of its effects. Here are 5 tips to manage your debt load better.

  1. Make a budget. It really does make sense. Some people don’t work well with a structured budget, filling in line-by-line items to track spending. Others find that it’s the best thing since sliced bread, providing a foundation for financial future. You can be as basic as putting a set amount money in a spending account after paying your bills and your designated savings. Or, you can go the spreadsheet route. Find what works for you and stick with it.
  2. Get rid of high-interest loans. If you have high-interest loans or credit cards but your credit situation has improved since you received them, you can look at consolidating. Lenders can often reduce your interest payments through consolidation, meaning more money goes to the principal amount to pay off your debt faster.
  3. Pay off your credit cards. Your credit card is a flexible loan, and one that can quickly get out of hand. Pay off your credit cards, then use them only as much as you can pay off every month. If you need to make a big emergency purchase, you’ll have the available credit to do so. Plus, you won’t have the outstanding amount hanging over your head.
  4. Pay regularly. In the moment, you may not think that your current bills will help you in the future. However, if you pay on time, every time, you’ll boost your credit rating. That can mean lower interest rates and lower payments on future loans.
  5. Make smart purchases. So much debt is accumulated on consumable purchases. Things like meals out or drinks with friends, clothing, and day-to-day expenses like fuel and vehicle maintenance can tally up quickly on your credit card. Whenever possible, pay cash for consumables and use debt or loans for larger purchases.