How to Save Money and Pay Off Debt
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If you find yourself in debt, you're not alone: Nearly three-quarters of Canadians have some type of outstanding debt, according to Statistics Canada. Not only that, but COVID may have made matters worse: According to the MNP Consumer Debt Index, 30% of Canadians surveyed say the pandemic increased the debt burden on either themselves or their family.
Whether you're juggling credit card balances, have a hefty car loan, line of credit or student loan—or a combination of multiple sources—managing your debt, and even paying it off, is possible. Here are some strategies to help you get out of the red faster.
1. Set a goal
If you're serious about saving you need to set a goal so you know what you're saving for. Whether it's a trip to Japan you hope to take in a few months or saving for retirement, having a very specific goal will help you stay motivated and on track.
2. Track your dollars
The best way to get on track to saving is to spend less than you earn. Tracking your spending—either through a daily journal or an app—can help you do this.
3. Trim spending
Consider trimming expenses. Once you know how much you're spending monthly, you can decide what areas you'd like to cut back on so you can meet your savings goal.
4. Kill two birds with one stone
For those with low to moderate incomes, paying off debt—including the mortgage—is the best tax-planning you can do. That's because you don't pay taxes on the capital gains on your home and there's no tax on the return you get for getting out of debt.
5. Automate it!
Set up an automatic transfer of funds to a savings to a savings account (or TFSA or RRSP) so that a set amount—say 10% of your gross monthly income that comes off your paycheque automatically. This way, it's not a question of finding the willpower to save every month. So save first for the goals that you have and then spend what's left over.
Watch: How can I start saving money?
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6. Pay less tax
Slash your taxes by making sure you use TFSAs and RRSPs properly. Hint: Generally speaking, if you make less than $50,000 annually, TFSAs work best. If you make more than $50,000, then saving in an RRSP works best.
7. Don't tempt yourself
Eliminate temptation to control spending. Forget roaming through malls and bookstores where impulse buys are common. Instead, hit the gym or join a book club to stay busy and engaged.
8. Stack it
One strategy to pay off debt quickly is the stacking method. It asks you to list all of your debts in descending order from highest interest rate first on down. This strategy requires you to make minimum payments on all of your debts while directing the remainder of your funds towards the loan with the highest interest rate. Once that one is paid off, you'd do the same to the next highest interest rate debt on your list.
9. Let it snowball
A second method to pay down debt is the debt snowball strategy. This is where you focus on paying your debts from the smallest amount to the highest by making minimum payments on all your debts and putting the remainder towards the one with the lowest amount—such as a credit card, say. Paying off a small debt can lead to a feeling of accomplishment, which is an important motivational factor for those who may feel overwhelmed by their debts.
10. Know your TFSA
The limit for 2019 is $6,000. Try to max it out if you can. And remember, your room is cumulative, meaning the unused amount you can add to your TFSA has rolled over.
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Source: https://www.moneysense.ca/save/10-ways-to-save-more-and-pay-down-your-debt/