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New Year, New Debt Reduction Plan

January 11, 2017

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You survived another consumer-spending-driven Christmas season, and now you’re left with a few additional financial wounds. Once you’ve received your December credit card statements, and the initial shock of your overinflated balances has settled, you will realize there is no time like the start of a new year to regain control of your finances and eliminate your debt. But where to start?

Start a List

The first step in your debt elimination plan is to put together a list of your outstanding debts along with the minimum payments required for each. It is important to ensure all minimum payments continue to be made on time. You will also want to begin tracking all household expenditures. We have found that individuals who carry a daily log book are the most effective at tracking where their dollars are being spent. Once you’ve developed an accurate account of your actual expenditures you will need to establish a monthly budget. This budget should reflect every dollar that comes in and out of the household. The budget should also reflect the minimum payments required on all consumer debts. Often, tough decisions need to be made to eliminate expenditures relating to “wants”, as the market will always be tempting us with new products and services. It is always important to keep this in mind, as well as what you can afford on a monthly basis in order to pay off your debt.

Press Pause on Credit Cards and Lines of Credit

Step two in achieving your financial goals is to stop using credit cards and lines of credit for future purchases. If your monthly budget does not reflect a positive balance after factoring in living expenses and minimum card payments, then further thought needs to be given to either reduce your expenses or find ways to increase your household income.

Maintain a Positive Balance

Maintaining a positive balance helps to build a buffer that will ensure you are not vulnerable to the use of your credit cards or line of credit in the future. Once you’ve saved enough money to cover one month’s expenses, the additional monthly surplus should be put towards your debt with the highest interest rate. Once paid in full, you should target the next highest debt until all outstanding debts have been eliminated.

If this self-imposed debt elimination strategy cannot be achieved within 36 to 42 months (three to four years), it may be time to start thinking about a consumer proposal. A consumer proposal stops the continuing interest charges of creditors, allowing you to stretch your hard-earned dollars and become debt free faster. To learn more about the benefits of a consumer proposal contact one of our trusted Licensed Insolvency Trustees today.

 

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