Modern Money: 6 ways to reduce debt

[ Presented by Presented by Express Business Funding]

You’re in debt and you’re freaking out. That’s totally normal! You’re not alone. A report from TransUnion found that “the typical Canadian owed $21,348 in consumer debt (not including mortgage debt) at the start of 2016.”
It may feel overwhelming, but getting out of debt is something people do every day, and you can do it too with a little planning, number crunching, and lifestyle changes. Here are six ways you can reduce debt (that don’t include eating soup and rice every day!).

1. Start tracking your spending

If you don’t know what you’re spending, you can’t figure out where to shape up. Sign up for a free money-tracking app, such as, to track all of your spending and set limits. Use Excel or Google Sheets (or even a notebook and pen if that’s easier for you). Do anything that will keep you honest about your spending habits. And most importantly, log everything.
Once you have everything tracked, see where you can cut back to save instead. Do you have a gym membership, but also have a gym in your condo? That can save you $720 a year. Are you spending $3 on a coffee every day? Making coffee at home can save you about $80 a month. Be real with yourself about your buying lunch at work habits, your shopping habits, and whether or not you can really afford that weekend vacation. Also, stop spending with your credit cards. Right now. Cash and debit only! If you can’t afford it, don’t buy it.

2. Negotiate with service providers

A nifty trick that a lot of savvy savers do is to take time once a month to call all of their recurring bills, such as phone, cable, internet, and credit cards, to haggle for a lower rate. There’s usually a lot of wiggle room, and you’d be surprised at what you can save by doing this. Do you really need 5 GB of data? Extra sports channels that you never really watch? Chances are, you’re paying monthly for something you don’t really need. And sometimes they’ll give you a $10/month discount just for asking.
If you have a credit card, chances are you’re paying a hefty interest rate. Credit card interest can range from 19% to as high as almost 30%! You can call up your providers and try to negotiate a lower rate.

3. Pay off your highest interest loan first

As mentioned above, high interest debt can absolutely crush you. Tackle your high rate loans first either by paying them off with cash, or anything that costs you less (such as a lower interest rate loan, line of credit, whatever). Anything is cheaper than leaving credit cards full.
If you have a variety of loans with similar interest rates (multiple cards, or multiple lines of credit), then tackle the smallest one first. That way you reduce the number of loans quicker, you see results sooner, and you can build momentum. Don't put all your money towards your mortgage first - that'll take twenty years. Aim for the $300 bill that hasn't been paid for two years. The worst thing you can do is divvy up your payments equally across all loans – it’ll take you forever. Tackle one, and then snowball those payments onto the next one. Voila!

4. Consider a consolidation loan or line of credit

It may seem crazy to pay off one loan with another loan, but this method can actually be very smart. Talk to your bank and set up a meeting with an advisor. Chances are you may be able to pay off your loans with a line of credit from the bank, which typically has a much lower interest rate than a credit card or car loan. 

Note that most lenders will only lend to you if they trust you. You may need a co-signer for a line of credit or debt consolidation loan. Start having the conversation with someone in your family who may be willing to help you, or talk to a debt counselor. Asking for help is the first step to becoming debt free.

5. Pay yourself first

An age-old rule is to pay yourself before you pay any of your bills. While you’re trying to pay off your debt, it’s important to not forget about saving, too. Don’t punish yourself for being in debt! It’s okay and it happens to everyone. 

A rule of thumb is to have three to six months worth of salary saved for unexpected emergencies. If that seems like a lot, how about try for $1,000? Allot an amount each month to put away for your rainy day fund and stash it in a tax-free savings account (TFSA), which is a high-interest savings account that does not get taxed. 

6. Create a plan, make a budget, and stick to it

It’s important to realize that you're never going to get ahead if you just keep doing what you're doing. It’s integral to make a plan, create a realistic budget, and set timelines for yourself. These things are crucial to your success and you have to make sure to give it a lot of thought.
Be honest about your budget so you can feel good about it. If you know making coffee at home is just something you’re never going to do, budget for it and make cuts from somewhere else. Don’t set yourself up for failure. The worst thing you can do is be super strict, feel bad about yourself, and give up. Set yourself up for success and celebrate your wins. Put even a little bit of money aside for your favorite lunch spot once a month to celebrate. Make goals with specific timelines, for example: “By June, I will have my $1,400 credit card paid off and cut up.” If you don’t give yourself deadlines, it’s easy to keep slacking. Hold yourself accountable.

The final step is to feel excited about your journey. You can save without being a frugal penny-pincher. Try not to live above your means; pay attention to everything you buy and you’ll notice a huge shift in your bank account. Don’t be a sad saver! Feel good about yourself that you’ve taken the steps to become debt free. Lastly, learn as much as you can about personal finance and get even better at it. Read books, browse blogs, listen to podcasts, and ask others for advice. You’ve got this!