Our debt-fueled world isn’t sustainable. Here’s how you can start breaking the cycle.

Purchasing decisions used to be easy for most households. Until the early 1950s, people mostly bought what they needed and paid for their purchases with cash. Wants were few and luxury items for the most part beyond reach. Fast-forward 70 years and it’s not surprising that “I see, I want, I buy” has become the guiding mantra for so many consumers and that consumer debt keeps breaking one record after another.

Today’s consumers are inundated with pre-approved credit and lucrative offers to buy now and pay later. We’ve gone from keeping up with the Jones to keeping up with the Kardashians. Interest rates are at an all time low, and we can have almost anything we want with the point and swipe of a finger.

Millions of Canadians now owe more in debt than they have saved for retirement, much less a rainy day. Around half of households are consistently $200 or less from insolvency every month and only a third believe they could afford an unexpected home or auto repair expense without taking on more debt.

Everyone wants to believe they’ve got the situation under control, but if the coronavirus crisis is any indication, it doesn’t take much to call even the most seemingly secure job and the most sustainable lifestyle into question.

Escape is possible

It is possible to break free from this endless cycle of impulse purchases and debt, but it requires embracing a different mindset.

First you need to understand your triggers: What drives you to spend? What tools and technologies make it far too easy for you to part with your money? Then you’ll need address your existing debt and create a plan to overcome it for good. Following are some tips to help you create a realistic plan to do just that.

Take stock of your debt
Make a list of all the creditors you owe money to and how much you owe. Note the minimum monthly payments and approximately how long it would take to eliminate each debt if you stopped adding to it today. Don’t be surprised if this number is 20 years or more for some credit cards.

Decide on a debt reduction strategy
The two most common options are the debt snowball and the debt avalanche. With the snowball method you focus on paying down the smallest debt first while continuing to make the minimum on all your other debts. Once you pay the first debt off, you move to the next smallest, and so forth. The avalanche method is similar, except you focus on the debts with the highest interest rate.

Create a budget
Note your monthly household income and your non-negotiable expenses. These include housing, utilities, food, transportation, insurance, necessary clothing, medical expenses, childcare costs, and minimum debt payments. What you have left over is what you can contribute to your snowball or avalanche strategy, plus savings and any other miscellaneous expenses.

If you’re not able to reasonably pay down your debt with your current budget, you may have to make some of the following adjustments:

Increase your income
Look at options to bring in some extra cashflow like taking on a part-time job of selling some of your possessions. Check online classified sites to see what people are charging for desirable items such as:

  • Recreational vehicles
  • Sporting equipment
  • Gently worn / unworn clothing / old baby clothing, etc.
  • Stereo / audiovisual equipment
  • Old / gently used mobile phones, tablets, laptops, flat screen televisions, etc.
  • Furniture

It may also be worthwhile to downsize into a smaller property if you can do so without a significant penalty. Can you eliminate a second vehicle? Would the savings be enough to significantly pay down your debt?

Reduce your costs
Financial prudence doesn’t mean you have to give up everything — just being a little more conscientious about when, how, and why you choose to spend will help. Even embracing a handful of the following tips can help get your budget back in order:

  • Clip coupons for commonly purchased items (e.g. groceries, toiletries, etc.)
  • Cut back on restaurants and takeout
  • Make shopping lists (and only purchase what’s on the list)
  • Meal plan to stretch groceries even further
  • Look up recipes to make use of ingredients you already have on hand
  • Comparison shop online and take advantage of price match guarantees
  • Only wash full loads of laundry and dishes
  • Wash with cold water and air dry as much as possible
  • Turn your thermostat down at night and when you leave the house
  • Turn down the heat on your hot water tank
  • Turn the lights off in any room you’re not occupying (and switch to LEDs)
  • Walk, bike, carpool, and use public transportation as much as possible
  • Browse local papers and blog sites for free entertainment options in your area
  • Take advantage of your local library
  • Mend clothing whenever possible
  • Browse your local thrift shop or second-hand store for certain purchases
  • Cut back on vices (a pack a day smoker will spend upwards of $550 per month)
  • Plan early and save often for holiday spending and gifts

Grow your savings
It’s not the day-to-day debt that tips most people into insolvency. It’s sitting on a big pile of debt and getting blindsided by an unexpected cost like a broken furnace or job loss. Prioritize your emergency savings, even while you’re paying down your debt.

Most experts recommend setting aside at least six months’ living expenses. But even $500 or $1,000 can make a huge difference. And the peace of mind you earn from these savings more than offsets the longer timeline to becoming debt free.

Speak to a Licensed Insolvency Trustee
At MNP, we offer a no-obligation Free Confidential Consultation for every Canadian who wants to review their debt situation and understand all their options. Our Licensed Insolvency Trustees will provide an honest and unbiased assessment of your options and their recommendation for how to address your debt.