Climbing out of debt can be one of the most significant things a person can do for themselves. Some are necessary to take on, where for a reasonable fee you can borrow money to put towards home ownership or your education. These are investments that will, respectively, help you own property, as well as help, develop your mind and increase your earning potential.
But debt can also weigh down a person’s life, delaying or even preventing them from achieving major life goals like obtaining secure housing or saving enough to retire. The way the coronavirus pandemic has affected job markets and life in general makes matters of personal finance even more complicated.
People get into debt for all kinds of reasons, some of which are beyond their control. The coronavirus pandemic has drastically increased unemployment in countries around the world. As a result, depending on your job status, people who were financially stressed in 2019 may have had their debt grow rather than shrink.
Whether you have continued employment or your industry has faced turbulence and disruption, there are measures you can take today to help get control of your financial health. Keep reading to learn more about creating a healthy personal budget, and find resources designed to help people get out of trouble.
Track Your Spending in a Budget
It’s impossible to get your finances under control unless you know the precise state of your spending. How much money do you have coming in each month, and how much flows outwards? In general, most economists recommend a guideline of “50-30-20,” where:
- 50% of your spending goes to necessities like housing, transportation, groceries
- 30% goes to hobbies, entertainment
- 20% goes towards savings or repayments
Everyone has their own unique financial situation and their own goals or targets. But whatever your economic position may be — whether you’re in the red or the black — you need to have accurate financial data.
It’s in everyone’s best interest to rein in their finances, but those in debt need to be extra careful. Here are some helpful tips people can keep in mind to help them get ahead of their debt.
Get Your Story Straight When Speaking to Creditors
Establish a dialogue with your creditors early and be sure to get your story straight. Write out the full story beforehand, so when you do speak with them you include all relevant details.
With unemployment soaring due to the coronavirus pandemic, many people are unable to work for no fault of their own. If this applies to you, make sure your creditors understand exactly what’s going on.
Creditors will be more receptive to making alternate payment arrangements when they understand your story ahead of time.
Apply for a Debt Consolidation Loan
Of course, merely grasping the state of your finances isn’t always enough to improve them. If you’ve tracked your expenses and determined that no matter how you budget, you’re falling deeper in, there are measures you can take to get out.
One way is through a debt consolidation loan. In this process, the bank will issue you a new loan at a low-interest you can use to pay off your debt. Everything you owe will be bundled into one monthly payment.
This is helpful, but you need a good credit rating to get the approval from the bank. If the bank is unwilling to give you the loan, there are still very helpful processes that can help.
Debt Consolidation Programs
Unlike a debt consolidation loan, in a Debt Consolidation Program you won’t receive any new line of credit, nor any new interest to pay. Rather, there’ll be a reduction in your current interest rates, and it may even be eliminated altogether.
In this process, a certified Credit Counsellor from non-profit credit counselling agencies will advocate with your creditors on your behalf. Essentially, the professionals at agencies like CreditCanada.com will help you by making repayments simpler and more affordable.
People take on debt for all kinds of reasons, and getting out of it requires holistic support and judgement-free guidance from an experienced, non-profit agency.
Many agencies will give you a free and confidential consultation. This includes reviewing your debt, discussing the options, and weighing the benefits and drawbacks of each approach.
If a Debt Consolidation Program is the right decision, your counsellor will explain to you how it all works and guide you through the practical steps to get started.
It’s crucial to find financial assistance that is designed to really help people. Credit counsellors attuned to some of the strong feelings and sensitivities people have when it comes to the subject of personal debt.
Manage Your Spending
People get into debt for all sorts of complex reasons. For some, it’s poor money management and making non-essential purchases that could be better spent on repayments. For others, it’s loss of income, emergency expenses, medical illness, and many, many other reasons.
Many people have reduced their spending in the last few months, at a time when businesses have closed due to the coronavirus and we’ve all been encouraged to stay home. Everyone has a duty to be responsible citizens and help contain the spread of the coronavirus.
This means following all local health ordinances carefully and being diligent about practices we know save lives: wash your hands thoroughly and often, practice social distancing, and wear a mask in public. If you are out in public, make sure you’re abiding by the rules for the sake of everyone’s health.
But if you decide to stay home altogether, you will reduce your risk of exposure to the coronavirus and you’ll also reduce your spending. Over months, these savings could add up.
Escaping debt is a wonderful feeling, but the first step can be daunting. Just remember that many people are experiencing money-related stress right now, and there are practical steps you can take on your own to pay it all off, as well as external resources which are designed to help.