Debt, as we all know it, is almost inevitable. But with the global landscape of credit and debt shifting and adapting, it is sometimes hard to know which way to turn when it comes to money and debt payments. Questions such as “what is “good” debt?”, “should I be paying off my “bad” debt?”, “and how do I even get started when I am barely above water?” are commonplace, especially after the rock-and-roll year we just went through.
According to Equifax, one of Canada’s largest consumer credit reporting agencies, the debt profile of Canadians changed drastically throughout the pandemic. With consumer debt up almost 5% compared with last year and the number of Canadians on the brink of insolvency reaching a 5-year high, the post-COVID era looks like it will be an uphill climb.
But no need to despair! The outlook can still be bright! With the right game plan, you can make some extra dollars, pay off the “bad” debt, and get back on track towards financial health. Follow these tips and budget tricks from iCASH and get started today.
What is debt, really?
Alright, so that sounds like a bit of a weak question. I mean, who hasn’t heard of debt? But debt is more than owing money on a loan or a credit card. Debt, in essence, is anytime money is borrowed, and therefore owed, to another person or institution. So, by definition, even borrowing money from your mom, or making monthly payments on your new dishwasher, is debt. It is more than mortgages and credit cards, debt encompasses every single cent that is owed to someone else.
Good Debt vs. Bad Debt
Good debt? Does that really exist? The answer is “YES!” So what, exactly, is the difference between “good” debt and “bad” debt, and how can we make sure we are getting ourselves into “good” debt and out of “bad” debt? Well, we are glad you asked!
In simple terms, “good” debt is any debt that is incurred in order to increase your personal wealth or income over time. A student loan, for example, with the goal of increasing your potential salary (income), is a good debt. Another great example would be a business loan. Arguably, the business loan debt would be incurred in order to start a business and increase your household income. Both of these “good” debt examples are in order to increase income. If you were looking to increase personal wealth, however, then a mortgage is a great example of a good debt to that end.
Whether to increase income or personal wealth, good debts are only “good” when used correctly. For example, taking out a student loan for more than you foresee making in salary in your first year (as a rule of thumb) isn’t a very good idea. In the same vein, buying a house that is above your means and, therefore, overextending yourself is not a good idea for increasing wealth. Make sure to research both of these strategies fully before getting in over your head.
Now that we have a good grasp on good debt (pun intended!), let’s dive into the bad. As you may have guessed, “bad” debt is pretty much everything else. Bad debt, by definition, are debts that do little to improve your long-term financial outlook. But, just like the fact that not all “good” debts are good, not all “bad” debts are bad. Even short term debts, when used wisely to pay off higher interest or immediate debts, can be considered good. For more information on how to use instant loans to get your finances back on track, check out the iCASH Personal Finance Hub.
But how to make more money?
Ok, so now that we understand the concept of good and bad debt, and how it can work for us, how do we work towards being “bad” debt free? In all honesty, there is only ONE way to pay off debt more quickly and that is: put more money towards debt!
Alright, we know what you are thinking, that it is easier said than done! But no worries, we didn’t plan on leaving you high and dry to figure it out for yourselves! There are solutions to every problem! Here's some amazing tips on how to make more money in order to pay off your debt more quickly and efficiently!
Money-making tip #1: Side Hustle
It seems as if the term “side hustle” has taken on a whole new meaning during this pandemic. Everyone wants one and cool side hustles seem to be popping up just about everywhere. Perhaps your neighbour is selling some direct-to-consumer candles or beauty products. Maybe your crafty sister-in-law has started her own Etsy online shop. Maybe your cousin has started offering online tutoring. Whatever it is, side hustles are everywhere and they are one of the easiest and most convenient ways to make more money!
We published a blog a few years ago about the top side hustles that just about anyone can do and, although it was published pre-COVID, the article still holds up! The best part about the options in the blog, is that literally just about anyone can do these. You don’t need to be crafty or have a million dollar idea, you just need to devote a bit of your free time (aka Netflix binge-watching time) to your new money-making side project!
But, of course, the idea with these side hustle funds isn’t to have more spending money! Don’t let that temptation get the best of you! Continue living your day-to-day with your current income and discipline yourself to put any and all money earned from your side hustle directly to paying down your bad debts, starting with the ones with the highest interest!
Money-making tip #2: Ask for a raise
Have you been at your job for several years? Are you great at what you do? Then perhaps asking for a raise is the right move for you. And, if you are feeling particularly ambitious, before asking for that raise, why not put all the chances of getting a positive response on your side by learning a new, relevant-to-your-field, skill?
A few months ago, in order to help employees from pandemic-hit sectors, we published a blog about the ways Canadians can learn a new skill for free. The article was a huge success and helped many of our readers learn a new skill in order to either change careers completely or increase the knowledge and skills in their respective fields. The more acquired skills you know, the more income you can potentially earn.
Money-making tip #3: Change careers
Sometimes, no matter how much you try to change, your job just isn’t for you. And that is okay. There is nothing wrong with changing careers, no matter how old you may be. Whether it’s been in your mind for a while, or whether the pandemic made you see your job in a whole new light, sometimes a career change is simply the best thing for your financial situation.
Read the blog about the top 10 high paying jobs without a degree, it wasn’t meant to necessarily be for career change ideas, it was meant to be for employees furloughed or laid-off due to the pandemic. But the message holds for career changing workers as well.
Last but not least, knock down debt
So now that we have successfully increased our income and are ready to put that increase towards debt, what’s next? What is the quickest and most effective way to pay down that bad debt?
Paying down debt is a multiple step process. The first step, of course, is to gain the funds necessary to pay off the debt. Check. The second step is to create a comprehensive personal budget, and, of course, stick to it! And, last but not least, start making payments. Big ones. Bigger than the minimum. Take all of that increased income and drop it down, in payments, on your highest interest debts first. If you need help getting rid of the high interest debts, consider taking a quick easy loan.
Getting into debt isn’t always bad and is never insurmountable. With just a little discipline and some easy tips from iCASH, you can be living bad debt-free before you know it!