How to Reduce Debt in Canada

In a culture of consumption and limitless spending it is not surprising that personal debt has soared to an average of $41,740 per person in Canada. Even in the economic downturn, Canadians are continuing to add to their debt and spend money that they do not have. What many Canadians do not realize is that becoming financially stable and reducing personal debt is possible, and will free up funds for retirement, vacations and education.

Instructions

1

Take your credit cards out of your wallet so that you are not tempted to use them on a daily basis. Pay for your purchases with cash instead of credit. Using cash will help you separate your needs from your wants. Keep record of what you are spending your cash on so that you can revisit your needs vs. wants at a later time.

2

Make a list of all of your debts and prioritize them in terms of amount and the interest that is being accumulated. Terry McBride of the Financial Advisors Association of Canada and columnist for Canwest suggests paying off the smallest debt first while still paying the minimum on your other debts. When this debt is paid off, start paying off the next smallest debt. McBride refers to this method as the "Snowball Method."

3

Create a monthly budget that outlines how much you plan to spend on every little item. The Vancouver Credit Counselling Society suggests reviewing your credit card and bank statements to see where your money is going and what spending you can eliminate. One strategy to help you follow your budget on a daily basis is the envelope method, where you place cash in envelopes to cover the amount that you have allocated for groceries, entertainment, etc. This gives you the ability to see where your money is going and how wisely you are using your money for needs.

4

Talk to a professional debt counselor about consolidating your debts into one line of credit. Although interest rates might be a bit higher for a consolidation loan, you will only be paying one lump sum instead of the minimums on all of your debts.