Did you know that 6 out of 10 Canadians live from paycheck to paycheck? What’s worse is that almost 60% of Canadians would be in serious financial trouble if their pay were delayed by one week.
These are disturbing statistics, so what are we going to do about it? It is obvious that more and more of us are taking on more debt than we can manage. Is it due to greed or trying to keep up with the Joneses? What compels us to sink into so much debt?
As most of you know, the Bank of Canada raised interest rates again on September 8th and as a result, my husband and I decided it would be a good idea for us to put another $5000 towards our open variable mortgage. Although our interest rate is only at 3%, we know that we can get less than half of that in interest if we keep it in a savings account.
If our plan was to stay in our existing house for another 5 years or more, it would be really tempting to just fix our mortgage as the fixed interest rates are still really reasonable right now, and it is certain that the interest rate on our variable mortgage will continue to rise, albeit more gradually for the next little while.
Sometimes we may need a small amount of cash to solve our financial problems. We might be sinking deep into the debt whirlpool. This is when we need money and we should go for a loan if we don’t find any other sources. Loans are good to take when we need them, but if we do not act wisely, we may end up paying five to ten times more money than what we had actually borrowed. But you need not get scared about it. Payday loans can turn out to be a blessing, but only if you understand how to use them.
Everyone likes to have money, and to have the opportunity to get a loan instantly. But it is exactly during such moments of urgency that most of us tend to overlook the terms and conditions and the details and straight away apply for a payday loan to the first payday loan company that we can find. We don’t even think about the company’s standards, and we don’t research it or even compare other available options. And this is where the problems begin. There is no doubt that a payday loan can serve you better when it is really needed. Like everything, payday loans also have their pros and cons. So the trick is in knowing about payday loans and making appropriate and sensible use of them.
Although it may not seem like much, making extra payments towards your mortgage and loans can save you a significant amount of money in the long run. Even just a few extra dollars here and there is worth the effort to put towards your principal.
For example, if you take out a loan for $5000 at an interest of 6%, it would take you 5 years to pay it off if your monthly payment is $96.66. However, by adding an extra $50 to your monthly payments, you could pay off the loan in full within 3 years 2 months. If you added $100 extra to every monthly payment, you would pay off the loan in 2 years 4 months.
To make this more meaningful to you, check out this loan calculator and punch in your own loan or mortgage information to see the impact of increasing your regular payments or by adding a one-time lump sum.
My husband and I found that by putting extra money down on our mortgage, it has saved us hundreds of dollars on interest charges. Our goal is to aggressively pay down our mortgage while at the same time not neglecting to save for our future retirement and other goals.
It feels good to pay down debt as it lifts a burden from your shoulders. If you have difficulty using your money wisely, help yourself by putting any extra money away towards the principal of your loans so that you won’t be able to spend it on things you don’t need.
Just think, the sooner you are debt free, the sooner you will be able to use that excess cash flow for the things you really want to do but without the guilt or burden of knowing you will eventually have to find a way to pay for it.
Recovering from a snowball of debt can seem nearly impossible, especially for those with only one income or even a part time income. Although there are many options – debt consolidation, financial advising, an experienced debt assistant, etc.; however it is always wise to consider all options.
1) Obtain a Second Income
One of the easiest ways to destroy debt fast is to acquire a second job, either full time or part time. Since you are already living on one income, the entire second income can be put towards your debt. Almost every debt assistant and financial advisor will suggest that you pay off the debts that charge the highest interest first, in an effort to save you from paying solely interest.