Dealing with Debt and Budgeting

We know that the current economic climate, with rising cost of living and increased interest rates, is impacting people’s finances. To help ensure your financial health is in check, we’ve gathered some tips and advice on dealing with debt, as well as how to create and stick to a budget.

From credit cards and student loans to mortgages and lines of credit, many of us have financial debt of one form or another. Managing your money, accompanied by a well-structured plan to reduce and eliminate debt, is an important part of overall financial well-being.

		By making a plan to tackle debt and following a well-developed budget, you can take charge of your financial landscape and work towards a debt-free future quicker thank you might think.
	Matthew Siwiec Client Service Advisor, Certified Financial Planner, OPB

Dealing with Debt

Help tackle your debt with these tips.

1. Review your Financial situation: the first step in tackling debt and making a budget is to understand your financial situation. Look over your current income, expenses, any assets you own (for example, a home or vehicle) and liabilities. From here, you can begin developing a budget and plan to manage your debt.
2. Understand debt: there are many different types of debt. Loans can have varying terms for repayment and amounts of interest accrued, and this will impact how long it will take to repay them. For instance, credit cards tend to charge higher interest than mortgages or government issued student loans that have more flexible repayment terms and tax benefits than private loans.
3. Prioritize high-interest debt: paying down high-interest debts, such as credit cards, can save you much more money over the long term. Try and allocate any extra funds you have against these debts over ones with lower interest rates.
4. Eliminate small debts: if you can, you may find it beneficial – financially and psychologically – to pay off the smallest debt you owe first. This will help free up your time and money on other potentially larger debts.
5. Look at debt consolidation: if you have multiple debts which you are finding challenging to repay, consider consolidating your debt. This is where multiple debts are combined into a single, more manageable loan or payment plan. Debt consolidation can improve your credit score and, in some cases, also lower your interest rate. However, it’s important to research this option and consult with a financial advisor, as it isn’t suitable for everyone.

Make a Budget

Budgeting doesn’t have to be difficult. Here are some pointers to get started.

1. Increase your income: there are several ways to increase your income, such as taking a part-time job on evenings or weekends, performing freelance work, or selling any items you may no longer need.
2. Reduce expenses: assess your monthly budget and see if there are any areas in which you can cut back. These may include dining out and online food delivery, canceling any subscriptions you don’t use like streaming services, and opting for more affordable options of products like non-brand grocery items. The key with this process is to decide which spending is required (like rent or a mortgage payment) or discretionary (Netflix).
3. Create an emergency fund: building an emergency fund can help you avoid taking on more debt in the event of an unexpected expense or sudden loss of income. The general rule of thumb is to save between three to six months’ worth of living expenses in a separate savings account, where it is easily accessible and can accumulate some interest.
4. Monitor your budget: once you’ve developed your budget, it should be regularly reviewed and adjusted to meet your current financial situation. Be sure to also track your spending so that you keep within your budget.

Don’t be afraid to seek professional financial advice when required and speak to your creditors if you ever find yourself having difficulty meeting obligations with repayments and debt. Having a strategy to manage debt and developing an effective budget is a crucial pillar of financial security. Reviewing your financial situation and sticking to a realistic budget, coupled with good financial habits, can help you take control of your financial health.