How to Make the Household Budget Work
As household debt continues to rise for Canadians, having a well-prepared budget is more important than ever. Changing your budgeting habits can change your life after bankruptcy. By keeping up with debt payments, you can better plan for your financial future. Here are some tips on how to help manage your sources of debt and avoid being caught short by those surprise expenses.
Credit Card Debt
We often think of credit card debt as the hardest to manage. Not only is there a risk of spending money we don’t have, but the added interest charges each month make it even more challenging to budget properly.
Using a credit card can help build a solid credit history. However, it is recommended to only use credit cards for purchases when you have the capability of paying it off immediately or at least by the time the credit bill comes due. It is recommended to never have an amount owing on your credit bill and never to get into the cycle of only making the minimum payment.
One tip is to limit the types of purchases you make using your credit card. For example, use it for purchases that are consistent from week to week and are already factored into your budget such as commuting costs. To avoid falling prey to impulse buys, don’t use a credit card for these purchases. If you can’t pay for something immediately, then don’t make an impulse buy with a credit card.
You should avoid payday loans. Payday loans are hard to pay down because they are considered one of the most expensive types of consumer loans in Ontario. While difficult circumstances can understandably leave you in a desperate financial situation, you should take the time to research the cost of obtaining this type of loan compared to other options. Even a credit card with a high interest rate may be a more affordable alternative to a payday loan, which can cost up to $15 for every $100 borrowed.
In general, any unsecured loan - whether a payday loan, car loan, or line of credit - tends to have a higher interest rate because you aren’t required to put up any collateral, and is therefore more risky for the lender. Making interest payments across several loans means very little of what you pay will go towards the principal. Took out a sentence here.
As the months get colder, utilities such as hydro and heat can become a very expensive part of your budget. Many utility companies offer equal billing that will disperse your estimated utility costs across a period such as 12 months. This payment method can be a budget-friendly approach because you won’t see any surprising fluctuations in your monthly bills. In addition, some hydro companies now have online trackers that allow you to monitor your usage throughout your billing period.
Cell Phone, Cable and Internet Bills
Cell phone bills can easily add up if you’re not careful with your usage. Make sure you know the ins and outs of your cell phone agreement and review your bills regularly to ensure there aren’t any incorrect charges being made to your account. And if you find your current plan is hard to manage, don’t be afraid to contact your cell phone company about a better promotion or package that will keep your costs manageable each month. Most companies offer a family plan where you can share data and minutes at a more affordable cost.
Many people have stopped paying for cable bills since there are so many other options available to watch TV online or to pay a nominal monthly subscription fee (for prime video or Netflix or other platforms). But, if you are still paying a cable and internet bill, you can call your provider and ask if there are any promotions currently to try and lower your bill. Often, the provider will lower your bill for a period of 3-12 months. After that time, if they take off the promotion that has lowered your bill, you can call them again and ask if there are more promotions. It is always worthwhile to call multiple providers and compare the amount you are paying to what other companies are charging. With this information you can either change companies or use it to try and lower your bill with your current provider.
Income Tax Debt
Income tax time is stressful for many Canadians because it can mean owing the federal government money. If you are behind in filing your taxes, you may be feeling overwhelmed about the amount you owe to the Canadian Revenue Agency (CRA). And your outstanding balance could likely grow because the CRA may charge daily compound interest. If you are behind in filing your taxes and worried about having an outstanding balance, you can contact our Licensed Insolvency Trustees who can discuss your debt relief options, such as settling your taxes through a consumer proposal.
Surprise expenses are the most difficult to budget for and can leave us scrambling to find money we don’t have in the first place. Surprise events such as birthdays can be stressful because you may be expected to buy a gift or go out for dinner. One way to help manage these unexpected social expenses is to budget for an “entertainment” fund each month. While you may not know what these expenses may be from month to month, you will have peace of mind knowing that you have a financial cushion when they do occur.
Putting money in a savings account is a good financial practice to help better manage your debt overall. Whereas social expenses may not be as much of a financial burden, unexpected home or car repairs can easily put you in the red.
Everyone should have an emergency fund that is factored into their monthly budget. There are always unexpected expenses that can strike when you least expect it.
Essentially, an emergency fund is the cash you’ve saved up for the sole purpose of helping you maintain your everyday life as you navigate through an emergency such as an unexpected vehicle repair, a job loss, or an illness.
At Crawford, Smith & Swallow Inc., we can help you create a household budget that works for you. Whether you’ve filed for bankruptcy or want to consider your options for debt relief, we can help.
Contact us for a free consultation with our licensed insolvency trustees to learn about debt solutions that work for your situation.