How a Salary Increase Can Help You Pay Off DebtJan 16, 2018
Two provinces have already raised their minimum wage in 2018, and more might be forthcoming. It remains to be seen whether these minimum wage increases will lead to higher salaries for other workers, but it is definitely a boost for low-income Canadians.
In Alberta, the minimum wage increased from $12.20 to $13.60, while the minimum wage in Ontario was raised from $11.60 to $14. Under the current government in each province, the minimum wage is expected to reach $15 an hour by this time next year.
These increases couldn’t come at a more opportune time for low-income families. Statistics Canada found that low-income households owe an average of $3.33 for every dollar they earn, almost twice the national average ($1.72). And Alberta has the highest debt-to-asset ratio in the country, with the average Albertan’s debt worth more than 20 per cent of everything they own.Low-income Canadians owe $3.33 for every dollar they earn. Here’s how to start paying off those debts. Click To Tweet
The good news is that this minimum wage increase provides extra income that could be used to pay off debt. Here’s how to get started.
How to pay off debt on a low income
Your first step is creating a monthly budget. You’ll want to know how much you earn, how much you spend, and what things you’re spending on each month. If you don’t already have a budget, this month is a good time to start tracking your income under your new salary. Add up your two bi-weekly cheques to find out how much you earned this month, which will give you an idea of what you’ll be making going forward.
If you’ve already been following a monthly budget, and you know what you’re spending your money on, you can now put at least some of your salary increase toward paying off debt. If you found yourself relying on credit to buy things like work clothes and groceries, you could also increase your budget for these essential items to help avoid adding to your debt.
Take advantage of a debt avalanche this winter
On the slopes, an avalanche is never a good thing—but when it comes to paying off debt, it’s the best way to cut down on interest charges. Find out the interest rate on each of your debts, then list them from the highest rate to the lowest. (If you have any payday loans, these will have the highest interest rates by far.) You’ll want to focus on paying off the debt that’s charging you the most interest. Keep making the minimum payments on your other debts, but put any extra money toward the one that’s costing you the most.
This strategy may not give you instant results. But over the long run, you’ll end up paying less money toward your debt if you use the debt avalanche to tackle the one with the most interest. Once that debt is paid off, you would then apply this strategy to the debt with the next highest rate.
Where to get help with debt
We understand that debt can be overwhelming, and you might not know where to turn. When it comes to dealing with debt, you are not alone. There are several debt relief options available, whether you’re looking to pay off debt on your own, or seeking a more formal solution from a credit counsellor or a Licensed Insolvency Trustee (LIT). Only an LIT can offer you solutions like a consumer proposal, which allows you to repay just a portion of your debts, or filing for bankruptcy, which can offer instant debt relief.