The ultimate guide
to debt reduction

January and February are often difficult months for many people.  In addition to overeating during the holidays, many people tend to overspend as well.

Over the years we’ve helped thousands of people get a grip on their finances.  This easy to use guide will save you hours of legwork and heartache if you’re serious about reducing your debt.  It’s important to keep in mind that debt reduction is like weight loss.  Putting it on is a lot easier than losing it.  However with the right tools and help, you will get it done and then you’ll feel financially, mentally, and physically healthier.

Post Holiday Debt Reduction Tips

These tips will help you overcome the holiday spending blues and get your finances back on track.
Remember, every little bit can help.

1 Sell it

Sometimes people may not know you already have that exact item or thought you’d really love something, when in fact you don’t.

2 Exchange it

If you’ve been provided with a gift receipt, consider exchanging the item for something you actually need which will help you save the money you were going to spend anyways.

3 Return it

Sometimes you may learn which store an item is from.  If you really don’t need it but could use the money to buy something else, consider returning it.  Stores will often issue a gift card that you can use for necessities even if you don’t have the receipt.

4 Re-gift it

If you’ve received a gift you don’t really need, keep it for somebody that would appreciate it more and save yourself the expense.

5 Put needs before wants

Most importantly, apply any cash you save towards
paying down your debt!

Have a spending plan

Accounting for all your income sources & expenses, and most importantly being realistic about your spending habits are critical to success.

Here are some tips when creating your spending plan:
  • List all income – employment, investments, and even child tax benefits
  • List all expenses – fixed ones like car payments or debts (minimum payments on all debts); variable ones like dining out or Uber; irregular ones like that annual gym membership or weekend trips.

Know your worth

A net worth statement tells you what you’re worth after you list all your assets and deduct everything you owe.  Remember to list all assets like your home, investments and any cars you may own and remember to deduct anything you owe like a mortgage, credit card debt and lines of credit.

Click the button below to download your copy of the Spending Plan & Net Worth Guide or enter your email address in the box and click Submit and we'll email it to you. Click here to download your Spending Plan & Net Worth guide

The magic numbers

What’s important is what’s left over after listing all the money coming in and going out on your budget, and after subtracting everything you owe from everything you own on your net worth.  To help make sense of it all when focusing on debt reduction, here’s a quick table:

Cash flow /
Net worth
Large positive
Cash flow
Small positive
Cash flow
Small negative
Cash flow
Large negative
Cash flow
Positive
Net worth
Revise Spending Plan
& power paying debts
Revise Spending Plan
OR consolidation loan
Revise Spending Plan
OR credit counselling
Credit counselling OR
Consumer proposal
Negative
Net worth
Revise Spending Plan
& power paying debts
Revise Spending Plan
OR credit counseling
Consumer proposal Bankruptcy

Take an axe to your spending

Reducing expenses can clear up the extra funds you need to put a dent into your debt.  Here’s a quick list of ideas you can use to clear up some cash flow.  Keep an open mind as you may be surprised you much you can save and every little bit helps.

1.Keep a close eye on your out of pocket expenses.

Sometimes people spend 5-10% of their budget on things like work lunches, snacks, and coffee without even knowing it.

2.Shop around.

Doing a bit of comparison shopping can save you upwards of 20% of your monthly grocery bill.

3.Get creative.

For the next little while, get creative and find free or low cost alternatives for your entertainment, birthday and similar types of expenses.

4.See if you can save on your mobile, tv, home phone and internet bills.

Sometimes we’ve been dealing with a provider for so long, they take us for granted.  If you haven’t done so for a while, go online and check to see if current deals are better than what you’re paying now.  You may be able to save $50-$100/month.

Add to your income

While this isn’t an option for everybody, see if you can increase your income.  This may be through doing some overtime at work, doing side jobs like Uber or Skip the Dishes, or market yourself online.  If you have a technical skill that is in high demand, there are a number of websites that look to pair buyers and sellers for things like web development, graphic design, accounting, and almost anything in between.

Borrow more money

Loan consolidation entails getting a loan at a lower interest rate and paying off multiple debts at higher rates.  The lower interest rate will reduce your cost of borrowing and can also help improve cash flow.  Many people also like the idea of dealing with a single payment every month for all their debt.  Quite often the best rate you can get will be by using the equity in your home through a secured line of credit.  You can explore this option further with your bank or a mortgage broker.

Transfer your debt

Some credit cards provide a 0% introductory rate for all balance transfers.  If you’re having a short term cash flow issue but are confident it will be resolved in a short period of time, then this option may work for you.  Be warned that after the introductory period, very high interest rates will apply and quite often retroactively.  You’ll need good credit to be approved.  You can search ‘balance transfer credit cards’ online for the most up to date information on which credit cards currently offer this.

Credit counseling, Consumer proposals & Bankruptcy


If your financial situation is more advanced and these tips alone do not suffice, here is a quick table outlining your next course of action.

Credit Counselling Consumer Proposal Bankruptcy
How it works A credit counselling organization will work with your creditors and create a debt management plan.  You make a single monthly payment that is then distributed to your creditors. A Licensed Insolvency Trustee will work with your creditors to determine the repayment amount and term.  You make a single monthly payment that is then distributed to your creditors. A Licensed Insolvency Trustee will complete all the necessary paperwork.
What debts are covered All your unsecured debts. Typically deals with unsecured debts but secured debt can also be addressed.  Tax debt can be included. All your debts including tax debt.  Some exceptions include:

- Student debt if less than 5-7 years old
- Spousal and child support payments Court imposed fines or fraud related debt
What about interest Future interest is most often reduced or eliminated. Future interest is eliminated. Would resolve all interest along with the principle debt.
How much is repaid The principle amount of your debt. Quite often only a fraction of your debt is repaid, sometimes as low as 25%.  This amount depends upon your assets and ability to repay.  Interest is eliminated. Some assets are subject to seizure and distributed amongst creditors.
Repayment term Up to 5 years N/A unless you have surplus income in which case it could be from 9-36 months based on a number of factors.  Surplus income is taken from a government chart that compares your income and family size.
What about my assets Untouched Untouched but they may affect how much you have to repay. Some assets are protected under legislation while others may be liquidated for distribution to your creditors.
Fees Nominal monthly or one time fees may apply but are often waived if you cannot afford them.  Creditors offer donations to help these firms survive.  Fees are unregulated. Your creditors agree to let the Trustee keep a portion of your debt repayments.  Fees are regulated by the Bankruptcy and Insolvency Act. You must pay the cost of filing for bankruptcy which varies but is likely around a couple of thousand dollars.  Fees are regulated by the Bankruptcy and Insolvency Act.
How will it affect my credit? Reflected on your credit report for 2 years after your last payment Reflected on your credit report for 3 years after your last payment Reflected on your credit report for 6 or 7 years (depending on your province) for a first time bankruptcy and 14 years for a second time bankruptcy.
Where can I get help? Credit Counseling Canada: https://www.creditcounsellingcanada.ca
Canadian Association of Credit Counselling Services: https://www.financialfitness.ca
Bankruptcy Canada:
 https://www.bankruptcy-canada.ca

When you pay the minimum your lenders make the maximum

Understand that just paying the minimum monthly payment on your debt isn’t a good plan.  With the average credit card debt being about $4,200 making just the minimum payment (usually 3%) at an interest rate of 18% means it will take 16 years and an additional $4,198 in interest alone to pay off!

$4,200
Average credit card debt
+
18%
Average interest rate
+
16 Years
To pay off the debt if only minimum payments were made
=
$4,198
Paid in interest alone
$4,200
Average credit card debt
+
18%
Average interest rate
+
16 Years
To pay off the debt if only minimum payments were made
=
$4,198
Paid in interest alone

Your employer may want to help out

As a final note, some employers offer an Employee and Family Assistance Plan.  Check with your employer to see whether you have access to one of these, and if it offers financial planning assistance as well.  If it does, you can speak free of charge to a professional financial planner that can help you navigate through all these different options.  And remember Employee and Family Assistance Plans are confidential.

©2019 Acquaint Financial Inc.