Do you dream of a debt-free life? For many individuals who live with debt and have grown accustomed to the financial stress that comes with trying to juggle all sorts of competing for financial obligations, being able to live a life free from debt seems like nothing more than a dream. It’s not that far-fetched, however, to visualize yourself living a life where your spending power and financial freedom aren’t dictated by the pressure to pay bills that you can hardly keep up with.
Whether you’re going at the debt relief solo, as part of a family, or even if you’re facing your debt fears along with others in a group-style financial empowerment class, you need to believe that it is possible to live a life free from debt. You don’t have to look too hard to find reasons for wanting to have more money for savings, for retirement, for home ownership, or for vacations, but you might have to look a little bit harder to find a way to make those goals a reality.
There are plenty of ways that you can improve your personal finances while simultaneously chipping away at the debt that you currently have. When you’re juggling different sources of debt as well as living expenses and credit repayment, it can be hard to figure out what you need to do in order to climb out from the pressure of debt and start saving money again.
Here are some techniques that you can use to reduce and manage your debt as well as the information you need to make a decision about two efficient forms of debt relief: bankruptcy and a consumer proposal.
You Need to Automate Your Finances
The future is now and that means it’s time to embrace automation and technology as they relate to our finances. If you’re someone who is just becoming familiar with online banking, the idea of automating your bill payments, savings account contributions, and loan repayments might seem overwhelming. After all, you’re letting an algorithm take charge of your bank account and carry out some of your financial errands for you. Are you really ready for that?
Ready or not, automation is here to stay and it’s best to get used to it as soon as you can. One easy and truly game-changing way to work towards debt repayment and stay consistent about your plans for paying back your credit is to automate your finances. In cases where you don’t know what to do about your debt but you know that there just has to be some way to adjust your budget in order to free up the funds you need to avoid collecting unsightly interest charges, financial automation is here to help.
As is the case with any of your long-term goals, financial or otherwise, it can be hard to stay focused on the big picture. You need willpower and effort in order to do so, but what really helps is the ability to make technology work in your favour to help you budget, save, and stick to your budget, too.
Getting Started with Automation
The first thing that you need to do as an individual who wants to automate their savings and bill paying processes is to open the right accounts. Starting with your primary chequing account and also including a savings account or two, you need to establish the “money pots,” as it were, in order to adequately direct your cash flow. Start out by having a cash cushion in your chequing account so as to avoid any unpleasant surprises like overdrafts that can strike when your automated financial schedule and payday schedules don’t line up.
Once you’ve set up your accounts and the direction of cash flow, set up your payments for your bills and expenses. Maybe you want to direct all of your utility bills to one account while you’d rather have your student loan payments come out of another.
You’ll need to address your credit card payments, too, which can be a good thing to automate since you’ll have to ensure that your credit card spending is in line with the amount of money in your bank account. Next, you’ll want to automate your contributions to your savings and investment accounts. It’s a common money myth that investing is just for the wealthy.
There are plenty of ways, especially new digital and tech-savvy ways, to make investing easy and accessible for all. You’ll want to focus first, however, on your RRSP and your TFSA. Establish the time of the month when it’s best to take money from your accounts and then set up the automatic savings deposits so you can watch your bank account grow without having to think twice about it.
Tackling Debt: Focus All Your Energy on One Debt at a Time
One way to work your way towards freedom from debt is to focus entirely on one debt at a time. Some financial advisors like Dave Ramsey will call this the “snowball method,” a way of paying off debt where you start with the smallest amounts of debt first and then work your way up to the larger debts.
The reasoning behind the snowball method of debt repayment is as such: you go through your debts one by one, freeing up room in your budget that would otherwise be spent on bill payments. As you make your way up to the larger debts, you find you have more room in your budget to make bigger payments on your debt than if you were trying to make minimum payments on all of your debts at once. While it can take a little bit of time to build up to the major sources of debt, it’s a fast and efficient way to pay off your debts while learning to live according to a budget along the way.
Slightly similar to the snowball method, you can also spend time focusing on one source of debt at a time. You can make the minimum payments on all your accounts, but pick one account to be the recipient of the extra-large repayment sum. Do this until that debt is repaid and then move on to another one. This helps boost your confidence since you can easily see yourself making progress with debt repayment.
The Legal Proceedings That Actually Reduce How Much You Owe
So far in this article, we’ve covered ways that you can independently modify your habits in order to accomplish what everyone is always trying to do: spend less and save more. And while you need to have the willpower and commitment to make important lifestyle changes in order to reduce and repay your debt, sometimes you need to accept the reality of your insolvency and seek out the help of a credit professional.
Of course, this is easier said than done since coming to terms with insolvency is not easy, even if you have the support of friends and family during this difficult time. You need to acknowledge that you are having serious financial problems and that you can’t tackle your debt on your own.
Every situation is different and everyone finds themselves in difficult financial positions for all sorts of unique reasons. What’s more, nobody plans on becoming insolvent, and it can truly happen to anyone. Even the best budgeters, savers, and planners can find themselves face to face with major life changes that affect their finances such as health issues that get in the way of going to work, divorce or separation, the costs associated with a newborn baby, unemployment, addiction or gambling issues, having to assume a caretaker position for a sick loved one, and so much more.
How do you know if you have a true case of insolvency on your hands and not just a regular, run-of-the-mill debt problem? There are some key warning signs that you need to be able to spot in order to leap into action and start to take control of your finances.
- You are defaulting on your loans.
- Your credit cards are constantly at their limits and you are making minimum payments in order to keep using them.
- You’re using credit for everyday expenses.
- Your paycheques and your bill due dates never seem to line up and you find yourself stretched incredibly thin in-between paydays. You may even be using payday loans or borrowing money from friends and family to cover costs.
- You are not even fully aware of the grand sum of all your debts.
- You are receiving (and dodging) constant calls from collection agencies.
- Your wages are being garnished because you have failed to pay back creditors and they have secured a warrant to collect money directly from your employer.
- You have received some sort of notice about legal action against you because of the money that you owe.
- You are hiding financial details and the true scope of your debt issues from family members.
- You’re living with extreme stress, anxiety, insomnia, and other physical stress symptoms as a result of your financial situation.
- You’re taking out cash advances on your credit cards.
If the items on this list sound familiar to you or maybe even to someone close to you, then you need to face the facts. You’re dealing with a case of insolvency. While this can be difficult to accept, it can actually be a huge relief to finally accept that you are unable to meet your financial obligations. While there is certainly a sliding scale of how serious insolvency can be, the first step you need to take in solving the problem is to commit to yourself that you’re going to explore your debt relief options.
Consumer Proposals and Bankruptcies
Once you’ve accepted that you need the help of a credit professional to help you make sense of what to do next with your finances, it’s time to team up with a Licensed Insolvency Trustee from a reputable firm. You’ll know you’ve found a reputable firm when you have a sense of full transparency and great rapport during your consultation. Are you looking to get help with a consumer proposal and need the right professional for the job? Trustees are the only professionals who are licensed by the Canadian Superintendent of Bankruptcy and have the authority to administer bankruptcies and consumer proposals.
Bankruptcies and consumer proposals are legal proceedings for insolvent parties who need debt relief. Both processes actually reduce the amount of debt that you owe, and there are a few key differences between the two methods of debt recovery. Your trustee will be able to assess your current financial situation and advise you on which means of relieving your debt is the best for you.
Finding the Right Licensed Insolvency Trustee (LIT)
How do you know you’ve found a trustee that you can trust with your debt recovery? Like any professional-client relationship, you need to feel comfortable and confident when you meet. If you leave your consultation feeling like your questions have been answered and you are informed about your rights as a debtor, then that’s a sign of a good trustee. Here are a few things to bear in mind when looking for the right trustee to work with:
- You’re going to be working with this professional for the duration of your consumer proposal or bankruptcy. This could be for a time period as short as nine months or as long as five years, so you should feel like you can communicate clearly and easily with the person who is going to guide you through your debt recovery.
- It’s easy to get in touch with your trustee and you can easily visit their office.
- You feel comfortable with your trustee and your meetings are judgement-free and full of compassion for the difficult financial situation you are facing.
- They are fully licensed and qualified by the Superintendent of Bankruptcy.
You don’t need to have expert knowledge of the differences between consumer proposals and bankruptcy before you meet with a Licensed Insolvency Trustee (or as they were formerly called, bankruptcy trustees). In fact, you can just click here to read another helpful article about tackling debt, this time about the differences between consumer proposals and bankruptcy. Still curious? Then why not read this to learn more about the benefits of a consumer proposal and how filing a consumer credit proposal, just like filing for bankruptcy, puts an immediate stop to wage garnishment.
Negotiate a Lower Interest Rate with Your Creditor
While you have to leave the consumer credit proposal negotiating to your bankruptcy trustee, one way that you can focus on some of your presents, everyday costs are to negotiate with creditors for lower interest rates. Especially when you have customer loyalty on your side, you could very well be able to strike a deal with your creditor and secure a better, lower interest rate.
Don’t be intimidated by facing your debt issues head-on. With all sorts of techniques to maintain control of your finances and the professional help of empathetic and qualified bankruptcy trustees out there, it’s entirely possible to turn the tables on debt. There’s a proverbial light at the end of the debt tunnel, and with the right mindset, tools, and support, you can start to achieve your financial goals at last.