December 7, 2022
Using a DIY debt solution means you need the right tools. See what those tools are and if they can work for you here.
Are you wondering if and how you can solve your debt problems on your own? We’ll walk you through a range of DIY debt solutions, from the easiest to the more advanced.
Most Canadians have a combination of debt, be it from a mortgage, car payments, credit cards or lines of credit. Rising interest rates and inflation are making it harder for many to keep on top of their bills.
Much like fixing problems around the house, it’s possible to take a do-it-yourself approach to your debt. Like any DIY project though you need the right tools and strategies to succeed.
It’s important to know the warning signs when you have too much debt. And it should be said that much like not attempting to put a new roof on a house all by yourself, there are some levels of debt that simply can’t be solved on your own.
But if the conditions are right then yes you can. If you’re a little behind on payments and are just trying to catch up it’s more than likely you don’t need to hire a professional to help you.
There are of course some levels of debt where professional help will be required. Not everything can be fixed with moderate changes. There are ways to tell if you need professional help or not.
The first step is to understand the debt warning signs. Calculating your debt-to-income ratio is the best way to evaluate your debt levels. Your debt-to-income ratio is the percentage of your income that goes towards debt repayments each month.
If you are spending 40% of your income each paycheque on debt it’s a good indication that it’s time to ask for professional help. People with smaller numbers, 30% and below, should exhaust all their DIY debt options first.
How much debt is too much? BDO’s Debt-to-income calculator can show you what your ratio is.
Calculate your debt-to-income ratioBudgeting is the foundation to achieving financial health. An outdated budget, or not having one, can lead to cracks in your foundation.
It’s always a good idea to revamp your budget and unlock savings.
Depending on your debt levels, budgeting may be all you need. Creating a budget shows you where you can make cuts to accelerate your debt repayment.
Explore 5 different budgeting methods and their pros and cons.
Once you have a good idea of your total debt, give yourself a timeline to pay it off. How much will you need to put towards your debt repayment every month to pay it off?
Anywhere from 0 to 5 years is a good DIY timeline for debt repayment. Knowing how much you can put towards your debt will help motivate you to increase this amount so you can pay it off faster.
Use our Debt Repayment Options calculator to see how much you will need to pay every month to repay your debt in 5 years.
What are your options and how much will you save?
Calculate your repayment optionsYou may have heard of different debt repayment methods, like the snowball or the avalanche method, but the best thing you can do is to attack high-interest debt.
If you have a lot of high interest debt, perhaps from credit cards, focus on that first. High interest debt is a huge drain on finances. By working on eliminating this debt you save yourself high interest fees, helping you pay less over time.
Depending on the size of your high interest debt it can sometimes take a while to pay it off in full. This is a strategy that focuses on having you pay less over time. Some people though can find it hard to stay motivated when they’re prioritizing the same bill for an extended period of time.
If you have lots of different debts combining all your bills into one easy payment is one way to save money. A debt consolidation loan allows you to combine all your debts into one payment each month. You no longer need to worry about paying multiple bills individually.
How does that help? Debt consolidation loans can lower your interest rate, saving you money each time you pay. If you have debt on multiple credit cards with an 18% interest rate consolidating your debts may bring the interest rate down to 11%.
You can get a debt consolidation loan through your bank. To qualify for a consolidation loan, you must have a satisfactory credit score and enough income to make the monthly payments.
Always do your best to pay more than the minimum balance each month on your credit cards. If you can afford to pay off the full balance for a month, do it. You’ll avoid interest payments, saving you money for later. It might cost more than the minimum now but it really saves you money in the future.
You don’t have to wait for debt collectors to call you. You can call who you owe money to and see if you can come to an agreement. Remember, they don’t want you to be unable to pay them either.
Doing so can save you from having to deal with harassing phone calls from debt collectors as well.
If you reach out and explain your situation they may be able to work with you to alleviate some of your financial difficulties. It’s possible they’ll offer you a lower interest rate, allowing you pay less over time. Or they could extend your payments over a longer period of time, reducing how much you have to pay each month.
It’s better to be proactive than reactive. Read more tips on negotiating with debt collectors.
There is no one answer to this. If it were that easy everyone would just do the same thing. It all depends on your own situation. If you have a small amount of debt maybe all you need to do is revamp your budget. Often though you’ll find you need to use more than one strategy in combination to get your debt under control.
Taking a consolidated approach is the best way to overcome debt. And know that talking to a debt professional doesn't mean that you won't be able to fix things on your own. It helps to talk to a Licensed Insolvency Trustee to explore your options. They can help with that.
If you realize your debt load is simply insurmountable and taking a DIY approach won’t be enough, don’t worry. Our team is here to help you. Book a free consultation with one of our Licensed Insolvency Trustees and they can go over your situation and find a personalized debt relief program that works for you.
December 7, 2022
Using a DIY debt solution means you need the right tools. See what those tools are and if they can work for you here.
