Dealing with debt in Canada
By Maria Montemayor
Posted on March 29, 2021
What’s a four-letter word that strikes fear in the hearts of many Canadians? Debt. When immigrants and refugees come to Canada, they are often overwhelmed with debt from government loans, immigration fees, and other expenses. The good news is that there are steps you can take to lower and eliminate your outstanding payments in Canada without compromising your health or peace of mind.
1. List your debts
Make a list of all of your current debts, and for each item, write down the total amount you owe, the interest rate, and the minimum monthly payment. Your list may include government loans, loans from relatives and friends, student loans, and credit card fees.
2. Create a strategy
Now that you have identified your financial obligations, you can create a strategy for tackling them. Identify how much money you receive, spend, and save in a month.
- Take a look at how much money you previously assigned to your debt per month.
- Calculate how much time it will take for you to pay the amount owed given your current income, and find out how much money you need to pay it off faster.
- Decide whether you want to pay off the high-interest debts (which means less interest to pay in the long run) or lowest balance debts (which means they can be paid off the quickest) first.
- Communicate with relatives and friends that loaned you money about a mutually agreed upon repayment schedule.
3. Stick to your budget
Create a budget outlining how much money you will spend in a given month. This budget will help you stay on track with your monthly expenses, including your outstanding payments. If you discover that your credit card spending has been out of control, don’t add to your credit card debt. Start using cash or your debit card instead. Make sure your monthly budget is realistic and stick to it.
4. Cut back on expenses
Perhaps you pay for cable TV, drive a car, or have a monthly phone bill. To lower your expenses, you can either reduce some costs or eliminate them entirely. For example, you can cut off your cable, bike or take public transit instead of driving, sell your car for a more affordable one, or choose a cheaper phone plan. Any amount of money that you save from cutting back on expenses can be put toward paying off your debt.
5. Make more money
The more money you have, the easier it will be for you to pay off your debt. You can do so by:
- working extra hours
- finding part-time, temporary, or freelance jobs
- selling or renting items you own
- taking online surveys
- participating in paid research studies
6. Pay more than the minimum monthly payment
For debt that cannot be paid off right away, make it a habit to pay more than the minimum monthly payment. If a government loan requires you to pay $150 per month and you currently pay $200 per month, try to pay $300 per month (or more). That way, you can pay off that loan faster.
7. Avoid bad debt moving forward
Getting a mortgage is fine, and it is considered good debt, since a house increases in value over time and has a relatively low interest rate. It is important, however, for you to avoid bad debt moving forward. This includes credit card fees, as credit cards have high interest rates, and auto loans, since automobiles decrease in value as soon as you drive them. Avoid payday loans at all costs, as they have incredibly high interest rates and impose penalties for missed payments.
To learn more about how to build your credit score in Canada, check this article by The Newcomer.
8. Save money for emergencies
To avoid adding to your debt during a crisis, make sure that you have an emergency fund. You can start off by putting five to 10 percent of your monthly pay cheque into a savings account or stash the cash somewhere safe. Only use the money in case of an emergency.