Published July 13, 2023 • 4 Min Read
Debt — credit cards, student loans, medical bills or something else — is a stumbling block for many Canadians as they work toward their most important financial goals.
Managing debt starts with understanding the types of money habits that can leave you indebted in the first place. A closer look at how you manage spending is a good place to start.
5 expense management mistakes to avoid
Expense management isn’t all that complicated, but even small things may trip you up and keep you in debt.
1. Not tracking expenses. It’s easy to end up with large debt if you’re not tracking expenses, especially if you rely on credit cards. When you don’t know where your money goes each month, it isn’t easy to get a handle on your overall cash flow.
2. Not making a budget.A budget is your personal plan for spending money each month. On one side, you have the money that comes in; on the other, the money that goes out. Without a budget, you may run the risk of overextending yourself. If you run out of money before the end of the month, you may need to pull out a credit card to cover expenses until the next pay period rolls around.
3. Overspending on non-essentials. Non-essential spending means anything you don’t need to maintain a basic standard of living. If a big chunk of your budget goes to things like dining out, entertainment or expensive hobbies, you may find yourself leaning on credit cards to finance those purchases.
4. Making impulse purchases. Impulse buys, even small ones, can quickly add up and drain money away from your budget. The impact can be even more significant if you use a credit card to make impulse purchases.
5. Allowing credit card balances to grow. Carrying a credit card balance month to month can cost you serious money if you’re stuck with a high APR. If you’re only making minimum payments while continuing to use your cards, then you’re likely to see the balance go up instead of down as time goes on.
Tips for managing debt
If you have debts and you’re ready to get rid of them, you’ve got options. How you go about managing debt (and paying it off) can depend on how much you owe and what types of debt you have.
Some of the most common debt relief strategies include:
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Balance transfers. If you mostly owe credit card debt, a balance transfer offer could help you save on interest as you pay it off. Balance transfer credit cards let you move a balance from one card to another and enjoy a low introductory APR for a set time period.
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Refinancing. Refinancing allows you to replace existing debts with a new loan, ideally at a lower interest rate. For instance, you might refinance private student loans or a mortgage to get more favourable loan terms.
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Debt consolidation. Consolidation is similar to refinancing in that you’re taking out a new loan to pay off credit cards, medical bills or other unsecured debts. Doing so can help you to streamline your monthly payments and potentially save money on interest if your new loan’s APR is less than the average rate you were paying on your debts previously.
Learning more about how these debt relief strategies work can help you weigh which one might be best for you.
Thinking you want to explore faster ways to pay off your debt? You can use our debt consolidation calculator to estimate your potential savings.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
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