If you’re in debt, the stakes are high. You need to take action and get out of debt as soon as possible. But if you are considering buying a lottery ticket or waiting for a windfall from your favorite store’s loyalty program, stop. In this article, we will look at how these quick and easy solutions to financial problems can backfire on Canadians who are trying to get out of debt.
Build a budget
The first step is to create a budget, which can be as simple or as complicated as you want. A basic outline of the steps:
- Track your spending for a month or so and see where your money goes
- Make a list of all the things you want to buy in the next year, and prioritize them by how they fit into your life goals—this will help you decide what kind of lifestyle adjustments are necessary
- If possible, sell unused items on Craigslist/Kijiji/eBay/VarageSale and then use that money towards debt payoff or savings accounts until you’re ready for another splurge purchase (or until an exciting opportunity presents itself).
Check your spending
>*If you’re serious about getting out of debt and building wealth, it’s time to take a hard look at your spending. You can do this by using any one of these tools:
- A budgeting app or spreadsheet. These are great for tracking all the various things you spend money on—and can help you set goals for reducing spending in particular areas, too.
- A pen and paper (or even just a few lines on your spreadsheet). If a full-blown budget isn’t really your thing, try keeping track of just your “fixed” expenses like rent/mortgage, utilities and groceries with nothing more than an old-fashioned list. This will help keep things simple without taking away from their effectiveness as an accountability tool!
>When it comes down to it though there’s no right answer here; what matters most is finding something that works for YOU!
Pay down debt
Paying off debt is an important step towards financial freedom. If you’re like most people in Canada, the amount of debt you have is likely significant compared to your income. However, it’s important to remember that there are two types of debt: interest and principle. Interest is the money paid each month on top of what you owe; principle is the original amount borrowed—the part that should be paid off first if possible.
The first step in getting out of debt is understanding how much you’re paying in interest versus paying down your principle balance each month (if at all). For example, let’s say John Smith has $15,000 worth of credit card debt at 25% annual interest rates and makes monthly payments of $200 per month towards his credit cards (which covers both interest and principle). In this case, his monthly payment would only go towards paying down 1% ($200/15000) or 0.6% ($200/$1500) annually.
Don’t rack up new debt
- Don’t buy anything you can’t afford
- Don’t borrow money to pay off your debt
- Don’t use credit cards
- Don’t use a payday loan
- Don’t use a cheque cashing service (also called check-cashing or check-cashing outlets)
- Don’t use a home equity line of credit
The chances are very low that money from the lottery will help you get out of debt. It is more likely to damage your finances.
It’s probably not a good idea to plan on winning the lottery to get out of debt. The chances are very low that money from the lottery will help you get out of debt. It is more likely to damage your finances.
There are many reasons why this is so. First, there’s the fact that lotteries are a tax on people who don’t understand math. Second, they’re a tax on people who think they can beat odds that defy logic. Thirdly, they’re a tax on those who have given up hope and feel like playing the lottery – something psychologists call “desperation.” Lastly, casinos rely heavily upon suckers for their profits – and what better sucker than someone desperate enough to buy lottery tickets?
Keep in mind that winning the lottery is not a surefire way to get out of debt. There are many cases of lottery winners who end up right back where they started when it comes to planning for their future. As we’ve discussed here, there are some ways you can improve your chances of winning big and keeping your finances stable after doing so — but none of them involve getting into more debt!