by Bert Griffin
As a financial planner with over 18 years of experience, I know the type of toll personal debt takes on an individual’s well-being and state of mind. A major part of my job as a financial planner is to assist my clients in the growth and protection of their wealth and, in the situations in which debt exists, to look for solutions that will effectively reduce it. Over the years, I’ve been proud to know that, on average, Canadians have managed to steer away from taking on heavy loads of personal debt, an historical trend that has been quite the opposite of our American neighbors.
That’s why it’s so unfortunate to learn that in the last several years, Canadians have proven increasingly willing to veer into the red when it comes to their personal finances, and to veer into it in a major way. According to TransUnion, one of Canada’s two credit bureaus, the average Canadian’s consumer debt (that is, non-mortgage debt) rose by more than $1,500 to a record $27,485, between 2011 and 2012. This is a number that many believe will likely increase as 2013 draws to a close.
The fact that Canadians are quietly though quickly catching up to Americans as far as their level of personal debt is indeed troubling. After all, a broad rise in consumer debt has the possibility of threatening many aspects of our economic environment. It has the possibility of threatening our economic recovery, the vibrancy of our real estate market, the likelihood of students to attend programs of higher education, and the list goes on.
Because personal debt is so insidious and because I find it so alarming that more Canadians are taking on higher amounts of it, I thought it would be an apt time to quickly talk about debt reduction strategies. These are debt solutions that I consistently recommend to my clients and which have been known to work.
Pay More than the Minimum on Credit Card Debt
We all know the danger that high interest rates on credit cards can pose. We also know the unfortunate situation of being able to only pay off the interest on a credit card debt and never the principal. That’s why being able to put oneself in a financial situation in which one can pay off on a monthly basis more than the minimum amount on a credit card(s) is so incredibly important. Even if the amount is $30 or $40 more than the minimum, over time the principal will be reduced.
Buy a Practical, Used Car as Opposed to a New Car. And, If You Can, Consider Moving to a One-Car Household
This is another point that some may consider as Personal Finance 101, but it’s important to mention. Many people fail to realize just how expensive a car can be and just how much of a chunk it consumes in one’s finances. The initial cost of buying a car is obviously one expense; but, a host of other costs follow the car’s purchase, such as its regular fuel costs, the costs to insure it, as well as repair it and, again, the list can go on. It’s for this reason that in order to reduce personal debt, if there’s an opportunity for a household to go from a two or three car household to a two car, or ideally, a one car household, it should be strongly considered. The savings that result can be truly significant.
To add to this point, an individual or family that is in serious debt would be advised to not consider buying a brand new car. We all know how quickly the value of new cars deteriorate and for an individual or family that is in the red, throwing money out the window on a new car will simply add fuel to the fire.
See If You Can Consolidate Your Loans
A final debt management solution that I would like to mention is the idea of consolidating a number of consumer debts into one loan at a reasonable interest rate. Although this can be a great strategy for debt reduction, it truly requires a sit-down with a financial advisor in order to make sure that, one, an individual can actual consolidate their debts and, two, that a proper financial plan is in force, once the debt is consolidated, to actually pay off the loan.