Despite warnings from financial educators and the Canadian government, consumer debt continues to be a serious crisis for Canadians. It is contributing to empty wallets, increased insolvency rates and higher levels of anxiety and depression.
It’s tempting to write this article on how to tactically get out of debt — consolidation at a lower rate — but tactics won’t permanently solve the problem that most Canadians have when it comes to debt: an inability to stop accumulating it. That requires a shift in behaviour. And to change behaviour for good we need to understand why we are doing what we are doing in the first place, and what we want to do to change it.
Are you chronically in debt? It’s time to acknowledge the issue.
Some debts are unrelated to behaviour, such as a small business loan or debt related to an unforeseen divorce. Exclude those debts from this conversation. We’re focusing on personal debts you have control over.
There’s no way to sugar-coat this — you have a debt problem if you meet any of the following conditions: you’ve carried a credit card balance for more than 60 days in the past 24 months, you’ve consolidated debt (moving one balance onto another at a lower rate) more than once in the past five years, you’ve experienced anxiety or depression about being in debt, you’ve lost sleep worrying about debt, your line of credit balance is higher than it was last year, but your assets haven’t grown, you’re dipping into overdraft every month or you and your spouse fight about debt regularly.
Unpack the real reasons you’re in debt
By facing the reality that debt is a problem for you, you can take the next steps to fix it. And you don’t need to wait for some massive turning point in your life to make changes.
The truth about debt is that it’s rarely about not having enough money. It’s typically a result of deeply rooted issues such as control (or lack of it), anger, self-esteem, personal satisfaction, impulse issues or the way you were raised (scarcity mindset versus abundance versus reality).
It’s time to dig deep. Are you revenge spending because your marriage is falling apart? It’s time to deal with your marriage. Are you a hoarder of things? It’s time to ask yourself what will make you happy, because another Google Home Mini definitely won’t. Were your parents poor and that is why you choose to spoil your children, no matter the cost? It’s time to put your past in its rightful place (the past) and adopt healthy financial habits your kids can look up to.
If you need help unpacking the real reasons for your debt, consider speaking to a therapist then use a money coach when it’s time to rebuild better habits.
Force your brain to think a little different
I get it. Debt-elimination requires immediate, effective tactics. Payments still have to be made, so you should take action and consolidate your high-interest debt at a lower rate (for instance, by using a low-interest line of credit to pay off high-interest credit card debt). But, even as you are paying it down and working through the real reasons you’re in debt, you can immediately start to evolve your patterns of behaviour.
Try the following two experiments and jot down how you felt, what the easiest and hardest parts about each were and whether these experiments offered any benefits to you. If you have a spouse, do these together.
Experiment 1: For the next two weeks when the urge to spend (big or small) creeps up, don’t rush to the store or flip open your computer and sign in to Amazon. Do a brief unrelated activity instead, like a set of push-ups or colour alongside your toddler for five minutes.
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Experiment 2: Try a seven-day spending detox where you can’t spend a single dollar. Exceptions would be paying your rent (or mortgage) and buying regular essentials like groceries or diapers. If this goes well, extend it into a 30-day detox.
These experiments may seem silly, but what they do is force you to pause your spending behaviours, which triggers your brain to think differently about the need to spend in the first place. These small steps toward better financial behaviours today are what will build the momentum you need to shift your money-mindset longer term, and get out of debt for good.