Ten Steps to Help You Get (and Stay) Out of Debt

Have you been telling yourself that its time to get out of debt, but you just don’t know where to start? Well grab your creditor statements and find your quiet place, because we’ve put together a list of steps to not only help you conquer your debt, but to also maintain a debt-free lifestyle once and for all. So, are you ready? Good, let’s get started!

1) Make a list of your debts

Gather any available information about your outstanding debts, including all account numbers and balances. If you are not sure what debts you have, you can pull your credit report from Equifax or Transunion to find out.

2) Create a budget

Add up your monthly expenses and deduct them from your monthly income, to determine how much you can afford for monthly debt repayment. If you are not sure how to create a budget, our Simple Guide to Creating a Budget can help. A professional non-profit credit counselling agency or can also help you with this during a free consultation.

3) Maximize your debt payments

Once you have calculated how much you can afford to put toward your debt payments each month, explore any possibilities for increasing your income and/or decreasing your expenses. Can you take on a part-time job or rent out your basement? Are you able to switch to a new cell phone provider or cut back on buying lunches? Even little changes to daily spending can add up fast to increase the monthly debt payment you can afford.

4) Determine the best solution for getting out of debt

Compare different debt relief options and determine the most suitable one for your situation based on how much you can afford to pay each month. If you can realistically afford to pay at least three to five times the minimum payments on your statements each month, you may be able to pay off your debts on your own. However, if you are only able to afford the minimum payments or even less, consider seeking help from a professional debt solution specialist. Our DebtAnswers Solution Finder can help you find an ideal debt solution based on your needs. Once you have come up with a plan for getting out of debt, get started as soon as possible.

5) Revise your budget and monitor your spending

Modify your budget to include your new monthly debt payments, based on your chosen debt solution. Monitor your spending for at least two or three months to ensure that your budget is realistic and manageable. Make adjustments to your budget as needed.

6) Get rid of your debt

Follow through with your debt solution or repayment plan until you are completely debt-free.

7) Ensure that your credit reports are up-to-date

Once you have gotten rid of your debts, pull your credit reports with Equifax and TransUnion to ensure that all creditors are being reported as having a $0.00 balance.  If any of the creditors are still showing a balance owing, contact your Licensed Insolvency Trustee, Credit Counselor or the appropriate creditor to have it resolved.

8) Start saving for emergency expenses and long-term goals

Now that you have paid off your debts, you can focus on avoiding future debt. Start by building a savings account for emergencies such as unexpected major vehicle repairs or a loss of employment. Experts suggest having the equivalent of three to six months worth of paychecks in your emergency savings account. You can also start focusing on long-term financial goals such as contributing to a Registered Retirement Savings Plan (RRSP) and/or Registered Education Savings Plan (RESP) and getting life insurance. Your financial institution can help you get started with any of the above.

9) Work on rebuilding credit

Depending on what route you took to become debt-free, it may take several years to rebuild your credit. Once you have confirmed that your debts are paid in full, you can start this process right away by obtaining a secured credit card from any reputable financial institution. Remember to keep balances to a minimum and make all payments on time. Also ensure that any regular bills you have are being paid promptly. Credit repair will not happen overnight, but if you are making monthly payments on time you should see a steady improvement.

10) Review and revise your budget regularly

As your life situation changes, your income and daily expenses will too. Be sure to review and update your budget regularly. Look out for any signs of overspending, and remember to plan for any upcoming major expenses such as home repairs or dental care.