Although most of us can’t spare a lot toward our looming debt, there are some low-cost strategies that could make a big difference. Paying off debt is a marathon, not a sprint, and a small payment is better than no payment!
Canadians carry owe $1.76 for every $1 they earn
In the fourth quartile of 2019, the average household debt in Canada did decrease (very slightly) from 176.6% to 176.3%. To be clear, this is still a pretty high average.
The average Canadian owes $72,950. Non-mortgage debt, namely credit cards, loans, and lines of credit accounts for $23,800.
Although the numbers are slightly lower this year, the reported financial behaviors of Canadians haven’t changed much. This means that paying off debt is not the number one financial priority amongst Canadians. Our spare money is not going to aggressive debt repayment!
Why aren’t Canadians paying off debt?
A recent Ipsos poll shows that more than half of Canadians admit to falling prey to “risky financial behaviors” that hinder their ability to pay off debt.
Essentially, Canadians haven’t changed their tendency to practice shortsighted finances, which often leaves debt repayment on the back-burner. In spite of the debt over our heads, as many as 53% of Canadians admitted to risky spending in the fourth quartile of 2019.
These “risky behaviors” have a wide range
Be aware that “risky behaviors” in this study include:
- only paying the minimum on credit card bills or lines of credits
- spontaneously spending on holiday sales
- making a major purchase on credit
As well as some behaviors with more serious long-term consequences, such as borrowing more money that could not be paid back quickly. Even the study itself admits that these behaviors are “sometimes out of impulse and sometimes out of necessity.”
Sometimes, paying off debt is a luxury
The issue of why Canadians aren’t paying off debt can be complicated because it could have to do with poor financial decisions. On the other hand, it could have to do with factors completely outside of your control.
We’ve talked before about how sometimes, paying off debt isn’t the priority. Your personal situation and social climate play a huge role in whether or not you have the means to spare any extra money, let alone enough to throw a couple extra payments toward your outstanding credit.
In fact, minimum payments are enough. Although not timely, your credit score won’t suffer from it. If you’re deciding between buying groceries and putting an extra $100 against your credit card balance, buy yourself some food.
Canadians have been strapped for cash for a while now. The fact that 50% of Canadians are $200 away from not being able to pay bills is a statistic that continues to shock me. It’s likely that our short funds play a major part in our reluctance to section off chunks of our well-earned paycheques toward debt.
Why should Canadians pay off debt?
However, it’s also important to note that time, when it comes to debt, can be devastating. Debt fatigue sets in around the three year mark, making your balances infinitely more difficult to pay off.
It’s far more likely to be dedicated to your debt repayment in the early stages than it is to be dedicated years down the road.
In other words: Pay Your F#$%ing Debt!
Not to mention the obvious benefit to paying debt early – less interest accrued! Your balance could rise as quickly as you make payments depending on how much interest is charged each billing period.
How can Canadians pay off debt?
There are a number of strategies for taking on debt. This is because it’s a very personal and complicated process! Once you start focusing on paying off your debt, don’t be disheartened if you need to try out more than one strategy before it starts to stick.
Since it’s clear that Canadians are struggling to find the extra cash to put toward debt repayment, I think the most realistic options are low-cost, low-effort strategies. Luckily, there are a couple ways to go about this.
Death by a thousand papercuts
One of sneakiest ways debt accumulates is through small charges you forget or ignore a bill.
Skip your phone bill once and then next month’s is twice as large. What was a regular bill is now a debt. Get a parking ticket and leave it unpaid and now that’s a debt. Many people can owe hundreds or even thousands of dollars in small amounts.
If you’re not sure how much you owe and to whom, start making a list. Check our credit report to see where you stand with your creditors and how much you owe. Every time a red envelope comes in the mail, add it to the list. Tally your balance and figure out exactly where you stand. You need to know if you’re going to make a strategy to pay it off.
The snowflake method
It seems obvious to me that the reason Canadians aren’t paying off their debt is because it’s really hard to pay off your debt. The middle-ground when dealing with a fickle economy and living paycheque to paycheque is to find low-effort ways to pay off your debt little by little.
Unlike other debt repayment strategies, the snowflake method uses small, unexpected savings to incrementally pay off debt. The idea is that whenever you have any money to spare, even a dollar or two, you put it toward your debt. Enough snowflakes can make a huge difference very quickly.
Debt is a marathon, not a sprint. This means that it will likely take years for you to be debt free. But it also means that you can go easy on yourself for making small and sparse payments where you can. Guilt doesn’t pay the bills!
Either you can pay $5 extra toward your credit card, or you can not. At some point, it becomes a habit, which is more important anyway!
Even if you can’t afford a debt avalanche payment, a slower snowflake method is better than no method. Again, take a look at Bridget’s great article on how to use the snowflake method and start chipping away at that balance with as little effort as possible!
Allocate “surprise” money to debt
If you get a chunk of cash unexpectedly, like a bonus or a tax return, put a portion of it toward debt. I know it’s tempting to spend this on something to treat yourself, especially if you’ve gone months without doing so. This is why I say only dedicate part of it!
If I commit to putting 50% of this “surprise” money toward my debt repayment, there are no excuses. Instead of looking at the money trying to convince myself to put it toward debt instead of treat myself, I can just do both at the same time. And since putting all of it toward debt is a feat I couldn’t hope to accomplish, I think 50% is better than nothing!
Canadians are still drowning in debt, and it is increasingly difficult for us to face our balances. However, there are lower cost strategies one could take to chip away at their debt without draining their savings account!