Many Canadians know that setting financial goals and budgeting can help them manage their money. It is equally important to think about debt management. Many of us are carrying around credit cards, and the average credit card balance is $4,240. So, if you are stuck in debt, do not worry. There are ways to get out of debt – pay it down ( and how you do it matters).
When you add credit card debts to other forms of debt, such as a mortgage or car loan, you may find yourself in a financial situation where it is challenging to keep up with your bills. Though it may seem like a good option to skip bill payments or pay a lower amount than the required minimum monthly payment, these choices can have unfavorable outcomes such as credit score damage. So, what can you do to get back on track if your credit activities are out of control?
Debt management is the answer.
Debt management programs are all about getting your debts and expenditure under control through effective budgeting and financial planning. The goal of this step-by-step process is to use a set of strategies to help lower your current credit level, grow your assets, probably eliminate debt completely, and repair any possible credit score damage.
It is possible to create a debt management strategy on your own, but you need credit counseling to create an effective plan. There are for-profit and not-for-profit organizations that offer credit counseling services. Though these organizations work in different ways, all operate with a similar goal – help Canadians create a financial budget to pay down their debts and eventually come out of deep debts.
How debt management plans work
Generally, debt management plans are designed to address unsecured debts such as personal loans and credit card balances. These strategies work in different ways.
The first is DIY budgeting. This involves creating a financial budget that will allow you to pay down your debts and stay financially stable. Many Canadians use repayment calculators, budget calculators, and financial management apps to keep track of their finances and debts. It’s also possible to negotiate with your creditors to lower interest rates or monthly payments. This strategy may work for people with minimal to moderate debts.
However, if you are deep in debt, you need more than DIY financial planning to handle bank loans and other creditors and pay your bills. You also need more than just an app that can help you budget in both local and foreign currencies.
The second debt resolution or management process involves working with a reliable debt management or counseling agency. Working with an experienced credit counselor could help you analyze your financial situation, level of debts and create a well-thought-out financial plan to pay down your debts. Also, the credit counseling agency can also help you negotiate a debt payment plan with creditors or get a debt consolidation loan from lenders such as banks.
This payment plan is designed to help you pay down your debts and ultimately get out of debt. Depending on your financial situation, your credit counselor can help you close your accounts as you pay each debt off. This will prevent you from creating more debts.
Cash flow mindset – more than just debt management programs
There is no magic bullet to manage your debts. Even if you decide to work with an agency to roll out a strategy to get of debts, the success of your plan depends on consistency and whether that strategy addresses your unique financial circumstances. So, the effectiveness of your debt resolution strategy boils down to the debt management approach recommended by your credit counselor and how the strategy is implemented. Do you now know why you need more than just a financial plan to get out of debts?
There are countless financial advisors across the country who can help you negotiate better payment terms. How about you get more than just financial counseling? The financial advisors at PersonalBanker believe in cash flow generation as one of the effective debt management strategies. Just think about it, a simple choice like finding eligible tax savings and personalizing your tax strategies to avoid unnecessary tax debts could save you more money (assets) to pay your credit card balances!
It might sound like a long shot, but it is an effective debt payment option right in front of you.
Like drowning, many people deep in debts waste time, money, and energy floundering and flailing. Rather, they should take highly focused, well-calculated, and strategically-timed strokes that can free them efficiently. The cash flow mindset eliminates this struggle.
Often, people struggling with tax debts and other forms of debts focus on addressing the wrong problem. When paying down their debts, they get riveted on the amount of interest they’re paying. They allow it to steal their attention just like a vehicle crash on the other lane causes a rubber-necking driver to lose focus on their own lane!
The reality is that interest rate is the second priority when paying down your debts. It pays second fiddle. Your first priority is cash flow. Focusing on interest rates is like focusing on the deep, scary ocean water full of the marine creatures below you. It is the wrong point to channel your attention if you plan to swim. So, do not work to escape the ocean water; work to reach the air!
And that’s the power of the cash flow mindset. Consult with the financial experts at PersonalBanker to learn more about cash flow – the easy way to get out of debts.
Tackling your debts – getting started
It is no secret that the COVID-19 pandemic has affected and damaged millions of Canadians’ financial well-being through illness, loss of income, and loss of jobs. But it is also a great time to perform debt evaluation and take the necessary steps to gain control of your finances and assets.
So, how do you start?
Financial literacy. The greatest savers in the history of this country once survived an economic depression or recession. This isn’t a coincidence. Such economic issues cause turbulence or chaos in the domestic financial markets and shape people’s perspectives of money. They spark the desire for financial literacy and security.
An in-depth understanding of personal finance is crucial because it equips you with the skills and knowledge to manage your debts and money effectively. It is the one thing that will affect nearly every aspect of your life. Note that financial literacy doesn’t require you to enroll for a degree in finance at a university. Instead, it’s all about having the ability to make effective decisions regarding how you use and manage your money. The five important pillars of financial literacy include financial budgeting, debt management, monthly payment of bills, saving, and investing.
So, if you are struggling to pay down your debts, consider meeting with an experienced financial advisor. Be sure to work with accredited credit counselors who understand how financial institutions and lenders or creditors work and can help you focus on cash flow and assets as a long-term debt management strategy. Make every dollar count.