How to Stay Motivated when Getting out of Debt

Starting a plan to get out of debt and keeping that plan are often two different things. It’s a lot like starting a diet when the New Year starts. You start off good, but then a week or two into it, you quickly fizzle and go back to your old habits.

So how do you stop this from happening when you’re trying to get out of debt?

Here are X ways to stay motivated to get out of debt.

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You can Conquer your Debt

Conquer Your Debt

If you’re sitting on a lot of debt right now, first know that you aren’t alone. The pandemic wreaked havoc on most people’s finances. Now that we’re seeing life get back to somewhat normal, you may wonder what you should do with your debt or if it will just hound you the rest of your life.

The good news is there are ways to conquer it. Here’s what you can do.

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Warning Signs you May Have too Much Debt

Warning Signs of Debt

How much debt is too much? It can feel impossible to tell, especially since any debt can feel burdensome. But there are a few ways to tell that you have too much debt and that it’s time to do something about it.

Before you use a credit card or take out a loan, it’s important to determine if you can afford the payment. If it will put you over the edge, it’s too much. Here are some other ways to tell if you have too much debt.

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How Social Media Affects our Spending

Social Media Increases Debt

Social media is a way of life for most of us, but did you know it could affect your spending? You may not even realize the direct connection, but we’ll show you ways that you might be spending more than you intended all because of your Instagram or Facebook feeds.

Comparing Yourself

How often do you watch someone’s feed and think poorly of yourself? Maybe they have something you don’t, or you want to be just like them. What do you do?

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Drowning in Debt Is the New Canadian Norm

Drowning in Debt

Debt used to be for the ‘deadbeats’ or people who didn’t care about their finances. Today, though, it’s the new norm.

Why?

Mostly because we live in a world of instant gratification. Millennials, and younger generations especially, want everything now. Technology, the internet, and the advancement of most services today are to blame but that doesn’t make it okay.

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Will I Owe Income Taxes and Have to Pay Back CERB?

Cerb and Income Taxes

If you received CERB during the pandemic, your tax liability may increase because you didn’t pay taxes at the time you received it – no one did.

Like any income, CERB is taxable, but there’s good news.

There aren’t special tax rates you must pay on any CERB you received. The tax rates are the same rates you pay on your employment income. This makes filing your taxes much less overwhelming than most people thought, but it’s still money you will owe.

How Much Tax will you Owe?

No two people will owe the same amount of taxes. Your tax rate depends on your total income and this year your total income includes all employment income plus any CERB you received. You can check your tax brackets here.

How do you Pay your CERB Tax Debt?

Like any tax debt, to figure out how much you owe, you must first file your taxes. It’s always important to file your taxes on time even if you think you can’t afford the tax debt. Get your taxes in and then take additional steps to manage the debt.

If you can’t pay your tax debt on time, contact the CRA. In most cases, they’ll offer a repayment plan or payment arrangement, but only if you ask. You must be proactive in your request, so you don’t fall behind.

Options if you can’t Pay your CERB Tax Debt

If you can’t pay your CERB tax debt, here are your options:

Apply for Taxpayer Relief

Taxpayer relief is available for those who have extenuating circumstances including unemployment, chronic illness, or a natural disaster. It has to be something outside of your control that stops you from paying the taxes.

File a Consumer Proposal

If you are in over your head in debt, you may consider a consumer proposal. This is a formal request for relief of your debts including your CERB tax debt. A proposal doesn’t eliminate the debt, but it may lower the amount you owe making it easier to afford.

Work with a Credit Counselor

If you’re in over your head in debt and now face tax debt too, get with a credit counsellor. If you free up some of your money by negotiating lower rates or consolidating debt, you may have more money available to pay your tax debt.

The key is not to ignore your debt. If you can’t pay it, work with professionals to find a way to make arrangements. Ignoring the debt only leads to more penalties and interest.

Final Thoughts

Don’t let the thought of tax debt put you over the edge. Yes, it’s another debt and if you’re already struggling it can feel like too much, but there are ways around it.

Contact our credit counselors today for your free consultation to find out how we can help make your tax debt more affordable. Sometimes it just means you need to free up some money by lowering your interest rates on other debts or negotiating other payment arrangements.

How Reducing Interest Rates Reduces Debt Faster

Pay Down Debt

Did you know that much of your debt consists of interest? This is especially true if you’ve carried balances for a long time.

For example, if you have a $10,000 balance at 20%, it will take you 60 months to pay off the debt with a $264 monthly payment and a total of $5,896 paid in interest. Your $10,000 would cost you $15,896, which is made up of 37.09% interest charges.

Reducing your interest rates can help you save money and pay your debt off faster.

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Pay Down your Debt and Put the Interest Money Toward Savings

It’s a common debate consumers face – do you pay down your debt or save money? You want to get rid of your debt, but you also need money saved for emergencies, so what do you do?

What if you could have the best of both worlds?

If you pay down your debt but continue ‘paying yourself’ the interest, you’ll get out of debt AND save money.

Here’s how!

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Which Debts Should I Pay Off First to Improve My Credit?

Improve Credit

If you’re trying to improve your credit, you need to pay off your debts. High debts can hurt your credit score tremendously, especially if you have a lot of revolving debt (credit cards).

To improve your credit score, focus first on credit card debt and then installment debt, which includes your mortgage, car payments, student loans, and personal loans. Before you jump in to pay off your credit card debt, though, you’ll need a strategy.

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Why You Want to Pay Your Debt, Not Get Out of Paying

Get Out of Debt

If you’re in over your head in debt it may seem logical to not pay it. If you can get debt relief, by all means you should take it, right?

Wrong.

Not paying your debt is much worse than paying it off as agreed. Even if you need a credit counselor to intervene on your behalf, get you lower rates, or a payment arrangement, as long as you pay the debt, it’s a lot better for your credit.

Here’s why.

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