The accumulation of debt has been an ongoing hardship for many Canadians, whether it’s from things like losing a job in the pandemic or trying to repay student loans.
Last year, Global News reported two-thirds of Canadians with debt could not keep up with their payments or had to make sacrifices in their budgets.
For Canadians who are looking to start paying down their debt, financial expert Preet Banerjee tells the morning show there are three factors to consider.
You need to look at your rate of interest to see how it impacts your expenses; you need to determine the total amount of debt you owe; and finally, you need to figure out whether your debt is increasing or decreasing.
When it comes to trying to reduce the rate of interest on debt, Banerjee says one thing that is easy for people to look into is shifting from high-interest debt to lower-interest debt.
For instance, if you have a credit card but also have access to a line of credit, you could go from paying 20 per cent interest on your credit card debt to maybe 5 per cent on the line of credit, if that’s available to you, he says.
“For every $5,000 that you transfer, you’re going to save about $60 per month in interest charges, so that can be effective,” said Banerjee, adding that it is also important to be cautious of not transferring debt from one place to another.
The COVID-19 pandemic is affecting many aspects of our lives including finances
“Do something about where that debt came from — maybe reduce severely the access to credit you had there or close down that credit card altogether. Otherwise, maybe you run the risk of running up even more debt.”
When looking at your total amount of debt, Banerjee says that debt is a part of life and when people start working, they often don’t make as much income as they do later in their careers.
“Our expenses tend to be very front-end loaded in our lifetimes. We have weddings, houses, cars, graduating with student debt,” he said. “And so, using debt is really shifting some of that income to now.”
Many people struggle with being in over their heads when it comes to debt, Banerjee said. “Sometimes, we just spend way beyond our means. And by making some series changes … (we) can actually melt away the stress.”
“If debt is really causing you a lot of stress, you have to be willing to do big things in order to tackle it.”
Additionally, Banerjee says that in a lot of big cities, like Toronto, rent has dropped by about 20 per cent for certain property segments.
“What that means is, if you were leasing a condo or an apartment that was $2,000 a month a year ago, it may be available right now for about $1,600 a month,” he said. “That’s $400 per month which is about $4,800 per year.”
Sometimes, it is possible to downgrade your expenses when rent has fallen in certain markets, Banerjee said, which might be a creative opportunity right now for people to consider if that interests them.
“Even if you’re not renting, it is possible to downsize if you know that you’re in over your head. You can downsize when it’s appropriate to do so.”
For Canadians who may be struggling or in need of professional help, Banerjee recommends going first to licensed insolvency trustees.
“(A licensed insolvency trustee) is a federally regulated debt advisor and picking up the phone doesn’t mean you’re claiming bankruptcy, it means you’re having a conversation,” he said. “And they may be able to change your trajectory.”
Having that conversation with a professional, Banerjee said, may be worthwhile and especially help those who may be in over their head when it comes to debt and finances.
Watch Banerjee’s full interview with ‘The Morning Show’ in the video above.
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