In Newfoundland and Labrador the average person holds consumer debt of $22,919. (reported by stats Canada) This doesn’t include mortgage debt or home equity line of credits. This average has already dropped by 1.4% over the last year. More and more people are realizing the urgency of dealing with their personal debt as a result of job loss and other uncertainties from covid 19.
At it’s peak, mine and my ex’s debt topped $111, 000. That doesn’t include our mortgage that we had also consolidated a chunk of debt into. Yup. It was bad. Really, really bad. If you want to know how I know so much and am so passionate about personal finance and getting out of debt.. that’s it. I can’t even describe to you the amount of stress and pressure I endured because of that number. The feeling of dread watching it rise too.
Debt isn’t just a number. It affects the jobs we choose, how many hours we have to spend working, it can make us stay in jobs we hate, make us move away for work, it even keeps people working well into retirement years. It affects our feeling of control and independence. It can feel hopeless and debilitating. It affects our relationships and if not managed well can lead to breakdowns in otherwise good partnerships. For many it becomes a contributing factor in staying in relationships we shouldn’t. The stress negatively affects our health and well-being. There were times it severely affected my sleep, I was having near constant anxiety, at times it consumed my thoughts. I was not the calm, present parent I wanted to be when I was in that state. It also kept me from taking full maternity leave. Having lots of debt is like a big ol black cloud over your life, it taints everything and it limits so many of your the possibilities for your life.
I am passionately anti-debt. I have about $4100 in debt now (getting divorced is no cheap process) but I am working diligently to get it gone asap. I know that it’s possible to move from a place of making life decisions from a place of fear and worry to now making those decisions with my goals in mind. I have cut my debt and fixed expenses so low that I can easily pivot and move as needed when it comes to getting sick, dealing with major life changes, unexpected expenses, etc. I cannot express the value that getting that debt under control has had in how I live my life, how I make my choices and how well I am able to cope when shit happens (spoiler alert – shit is gonna happen.)
The most essential step in getting out of debt is to get real about how much you have and how much it’s costing you. This part generally doesn’t feel too great, but if you can’t acknowledge where you are, you’re going to have a really hard time getting where you want to go. So haul out those statements or sign in online and write down the current balance, minimum payment and interest rate for every place you owe money. Include car loans, student loans, credit cards, lines of credit (including those backed by your mortgage), any personal loans, bank overdraft, taxes.. all of it. Any place you owe money goes on the list.
It should look something like this:
| Debt | Balance | Interest rate | Min. Payment |
| Credit card 1 | 5000 | 19.99% | 80 |
Then we’re going to add another column at the end that is interest. Take the current balance multiplied by the interest rate then divide by 12 months. So for the example above that looks like 5000x.1999/12 =83.29. This is how much that debt is costing you each month. This is money we could be using in a lot more fun ways.
Now is where you might really want to cringe.. adding it up. Total debt, total minimum payments, and total monthly interest costs. How does it make you feel? Is it more or less than you thought? I want you to resist the urge of beating yourself up for it not being as good as you may have liked. That doesn’t serve any useful purpose in moving forward. Instead lets focus on the things you can do right away to get the ball rolling in the right direction.
- Call the places you owe money and ask for a lower interest rate. This is especially helpful with credit cards.
- Maybe open a new credit card with an introductory low interest rate and transfer the debt there
- Pay out smaller debts with a lower rate line of credit to have your debt in one, lower-rate place
Credit lenders make money off you, this is why they are in business. The higher your interest rate and the longer you take to pay back the money you owe, the more money they will make. So when you call and ask for a lower rate, part of their sales tactic is to say no. You need to keep trying with this. If the first agent you speak to says no, call again and speak to someone else, or escalate it to a supervisor. Sometimes offering to take your business elsewhere will help motivate them into giving you a lower rate. Sometimes if they just refuse to budge and you know you’re a good customer, you’ve just got to follow through on that promise to move your business.
Another key point to consider is that maybe you can’t get a lower rate because your payment history sucked or you’re too high risk of a lender. If this is the case, make the calls anyway, you may be surprised. If this is the boat you find yourself in, sometimes setting up pre-authorized payments with them might help your case and get the rates lower. If you’re not successful this time, try again in six months when you’re payment history is much better.
Cutting your interest rate can save thousands of dollars and shave years off your payment schedule, so this is worth some time and effort.
Consolidation loans are another great way to lower interest rates but there are a lot of things to consider before making that move. The next post will hopefully make it clearer if it’s a good decision for your situation or not. I’ve also got more goodies on how to make a real plan and start moving forward but this part alone can take some time and it deserves some focus, so I’ll save the rest for another day.
Debt is not going to go away with wishes and prayers and lotto tickets. We’ve all heard the story of the person who wins the lotto or gets a huge inheritance and in a couple years are back in the hole again. Getting out of debt is going to take some regular attention, some mindset shifts, changes in habits, possibly some hard conversations, but it is so damn worth it all. Make a weekly date with yourself or your partner to work on this stuff. There is a lot to be gained by facing your debt head on. This is the self care that really makes life better.
Lots of love
Dawn
Tax Wise 