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How to Reduce Debt When You Live in a High Cost Area

Living in the GTA has its perks, but most would agree that life in the city is expensive, no matter what you earn. The same story rings true across Canada, as more and more people are having a harder time making ends meet.

Key affordability challenges, according to Canadians

Whether you’re a baby boomer ready to downsize before retirement, a millennial eagerly hoping to buy into the housing market or a family contending with childcare costs, affordability is a real issue for Canadians. According to our Affordability Index poll, here are the biggest challenges Canadians are facing:

  • Women, millennials and GenXers are having a hard time affording utilities, groceries, clothing and transportation.
  • 34 per cent of couples with kids feel overwhelmed by their personal debt loads.
  • Three-quarters of Canadians who don’t own a home say they won’t be able to afford one within the next 5 years because the market is too expensive or they’re living paycheque to paycheque.
  • 75 per cent of Canadians have delayed expenses over the past two years such as buying a home, continuing their education or having children due to a lack of affordability.
  • 30 per cent of Canadians said they don’t have enough money to cover their basic needs.

On top of affordability issues, Canadians who earn over $100k carry an average of $30,000 in personal debt vs. a $20,000 average for those who earn less. Even though many Canadians are managing their debt loads and taking steps to repay their debt, still half said they don’t believe their income in enough to let them live debt free. When expenses are already high, a heavy debt balance can push back your goals or leave you vulnerable to financial trouble, especially during a time of crisis.

How to reduce debt when money is tight

Paying down debt may actually be the answer to improving your cash flow. Here are some ways to help you reduce debt:

  1. Consolidate your debt. This involves combining your highest interest debts to a lower interest line of credit so you can simply manage your debt payment and reduce the amount of interest you pay in the end.
  2. Keep an eye on your budget. When money is tight, it’s important to maintain your priorities. A balanced budget looks different for every family, but you also want to know where your money is going each month. Here’s an example of a balanced budget:
  • 50 per cent of your monthly income goes toward essentials such as housing, food, transportation and utilities.
  • 20 per cent of your income goes to savings. This should cover your emergency savings as well as your short, medium and long term savings goals.
  • 30 per cent of your income toward personal interests such as trips, dining with friends, coffee, cell phone bills and gym memberships.
  1. Speak to a debt professional. A debt professional, such as an LIT, can recommend the best debt relief option for your unique financial situation, whether it’s a simple budget reorganisation, or a more formal options such as a consumer proposal or a bankruptcy.

Dealing with debt will not only alleviate money stress, it will also allow you to save more and cover more expenses each month.

Are you dealing with heavy debt on a tight budget? Take back control of your money by incorporating some of the above strategies. You can also join the conversation on Twitter using hashtag #DebtSolutions #PaychequeToPaycheque #HousePoor

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