It’s hard to find a region unaffected by the coronavirus pandemic, but certain countries and industries were hit harder than others. While society itself rushes to control the virus and prepare for the future, people need to manage their own finances.
Your situation may change depending on the industry in which you work and how your local government responded to the crisis. Are you still working? Maybe the nature of your job has changed?
Many employees are getting fewer hours. Even those whose jobs are safe may be wondering what the future has in store.
Whatever the status of your employment, now is a good time for everybody to have a strong grasp of the health of their personal finances. Here are some steps to understand your financial health, as well as recommendations to help you get out of debt.
Track Your Spending
You can’t possibly rein in your finances unless you understand how much money is entering and exiting your accounts, and where it’s going. Financial planning requires tracking how much you spend each month and planning accordingly.
Keeping track of digital payments is easy to do because you can just check your bank account or monthly credit card statements. Be sure to keep a receipt for any cash purchases you make, so you factor in all your spending.
Your job status may dictate your financial goals. People who have been able to continue working may be making as much income as ever, but their spending is down. On the flip side are people who can’t possibly work because of the pandemic, but still have bills to pay.
Once you have a clear picture of how much money is left over after all your expenses are paid, you’ll be better positioned to know which path forward to take.
Budget Yourself Out of Debt
Many economic experts recommend investing about 20% of your monthly income on savings or debt repayment. People who struggle to devote this much of their income to repaying debts may find it extra challenging to do so now when unemployment is so high. But the longer it takes to pay back debts, the more you pay in interest fees.
Debt may delay or even prevent people from achieving life goals, like buying a house or saving for retirement. Set some target dates for when you’d like to be out of debt.
For this, you’ll need to calculate how much money you can set aside each month to pay for debts. Work backwards. Determine when you’d like to be out of debt, then divide the money you owe over that number of months. If that dollar figure is within 20% of your monthly income, your repayment plan is healthy.
But what if you owe too much money to meet your goals? Paying back debt isn’t just about reorganizing your finances, but ensuring there’s a path to break even.
Debt Consolidation Loans
Sometimes repaying loans means paying off different bills simultaneously, with varying levels of interest. Debt becomes harder to get out of as it grows, but there are ways you can simplify things.
If you have a good credit rating but lots of high-interest debt, you can pay it back faster by applying for a debt consolidation loan. Essentially, a bank will issue you a new loan at a lower interest rate, and you’ll use these funds to pay off your credit card balance and other debts.
You’ll only have to chip away at one debt, and you should get lower interest rates to pay it off too. However, it can be difficult to get a debt consolidation loan approved if you have a lot of debt.
Debt Consolidation Programs
What if your credit rating prevents you from qualifying for a debt consolidation loan? If this applies to you, the next step is entering a Debt Consolidation Program.
The bank won’t give you a new loan at low interest with which to pay your debts. Instead, a Debt Consolidation Program will lower the current levels of interest you pay. Sometimes they’ll eliminate your interest payments altogether.
You’ll have one single monthly payment to make, and the amount will be lower than it would otherwise be. A certified Credit Counsellor from a non-profit credit counselling agency will advocate on your behalf to your creditors.
Look for a non-profit that has been in operation for decades, if possible. They have the experience to get real results, plus they understand that people need sensitive and dignified services customized to fit their situation. You can learn more about Credit Canada and all the ways experienced and committed agencies help people beat their debt.
The best Credit Counsellors provide holistic support in an unbiased and non-judgemental atmosphere. In addition to intervening between you and creditors, they can also help you build an attainable budget, get a secured credit card, and finally putting an end to those collection calls.
A Penny Saved is a Penny Earned
People get in and out of debt for many complex reasons, which may be rooted in both internal factors and external factors beyond a person’s control. Whatever the cause of the debt, the most fiscally prudent thing to do is save as much money as possible.
Are there monthly purchases you can cut back on? You don’t need to deprive yourself of pleasure or essentials, but perhaps you can cut back on some purchases to save some money.
Everybody needs to establish the right balance for themselves. But the more money you’re able to devote to your monthly debts, the less money you’ll waste paying interest and the quicker you’ll eliminate your debt.
Reducing your monthly purchases isn’t likely to fix your debt on its own, but it can be an important way to provide meaningful relief.
Everybody is taking stock of what’s going on in the world and trying to adjust to it as best as possible. It’s prudent for everybody in these uncertain times to understand their fiscal health. Even if the job market stresses you out, take comfort in knowing that there are measures you can take to get your debt under control and your finances in order.