3 Tips for Taking Control of your Debt

Many Canadians are all too familiar with stress caused by debt: it is like a cantankerous member of the family who continues to overstay their welcome.

There are ways to successfully clear debt from your life; they simply require you to apply the leadership and change management skills you’ve acquired in your career to the business of your life.

1. Modify your behaviour

If poor spending habits are what brought you into debt in the first place, you’ll need to modify that behaviour and adjust accordingly. For some borrowers, this may require that major actions be taken to curb lifestyle habits. If you feel you need professional support to tackle the root cause of your debt, speak with a credit counsellor, money coach, or financial adviser to help you get on track.

Even if you are financially stable, debt can make it difficult to make major purchases such as a down payment on a house. If large financial goals such as these are to be in your future, work with your partner to pool your finances and manage a shared lifestyle that is tailored to a strict budget and repayment schedule.

2. Create a sustainable long-term plan

You need to be realistic. Measure your daily and monthly expenses, including lifestyle and bill payments, against your gross household income. Ask yourself if you’re willing to completely cut out dining at restaurants or attending ticketed entertainment events from your lifestyle, and in addition, take on extra work outside of your 9-to-5 on a five-year basis. There are many options for part-time jobs based on your interests and skill-set, like consulting or freelance work. Every little bit counts, and it’s ultimately going to take time and effort to repay the loan.

To capitalize on the money you do have, you could open a tax-free savings account and automatically deposit a percentage of your paycheque into it. A portion of that money could be used to repay debt, while the rest could be used for taxes and RRSP contributions; investments like this reward you with a tax refund, which can be used to repay your loan.

For a long-term plan, you might want to consider opening a mutual fund where your money is locked in and will increase over a fixed term. At the end of the term, you can repay a higher lump sum of your accumulated debt.

3. Search for options to pay off your debt

One option is to sign up for a 0% APR (annual percentage rate) credit card. If you can pay off the credit balance in full at the end of each month, you don’t incur interest on your purchases, keeping your debt in check. The best way to go about this is to treat your credit card as cash – if you don’t have it, don’t spend it.

A second solution is to consolidate your debt with a line of credit. Debt consolidation combines multiple existing debts in a single new one that typically has a lower interest rate. Some borrowers prefer managing the one debt, especially if they can adhere to a strict repayment schedule over a structured long-term plan. Take for example TD’s home equity line of credit (HELOC), which gives you access to credit against the equity of your home. Here, the interest rate is low because you’re using your home as collateral. This is the best option for new and seasoned homeowners alike, as well as those in need of renovations or unexpected home repairs.

TD also has a personal or unsecured line of credit (ULOC). You can combine the flexibility of a revolving line of credit with the stability of a fixed portion. As you pay off your personal line of credit, that credit becomes available to you once again as an option to borrow. Remain steadfast in your commitment to pay off the loan; the line of credit is here to help you gain control over your mountain of debt, not let you fall back into the pit.

This is a smart borrowing option to finance larger or long-term purchases because you can borrow up to a maximum of $50,000. Repayment terms are set in your Line of Credit Agreement and you can repay small increments up to the entire balance.