By Angela Serednicki
As inflation tightens its grip on household budgets, financial worries are reaching new heights. A recent Leger for Financial Planning Canada survey found that 40 percent of people report money as their top source of stress, overshadowing concerns about health, relationships, and work.
“It’s normal to be stressed because it might feel like you don’t have control over your cash flow,” says Saijal Patel, the founder and CEO of Saij Elle, a financial wellness consulting firm.
Coping with inflation can be challenging, but it’s essential to remember that this period of rising prices will eventually subside. Instead of dwelling on these difficulties, Patel suggests using this time to assess your spending habits and focus on your financial priorities.
The First Step: Know Your Spending
Patel emphasizes the importance of knowing how much money you’re truly spending. “You can’t change what you don’t see,” she explains. She recommends regularly reviewing your credit card statements and receipts and comparing them to your budget. In her experience, 90 percent of people are surprised to find out where their money goes, and 30 percent underestimate their current spending.
Dealing with Credit Card Debt
A new report from Equifax Canada reveals that credit card debt has surged to an all-time high in the country, with the average non-mortgage debt now reaching $21,131. Patel shares that consolidating credit card debt might be an option for people serious about paying off debt.
“Consolidating credit card debt is a strategy that takes multiple credit card balances and combines them into one monthly payment. It makes sense if the interest rate on the new card or loan comes with lower interest so you can save on the total interest paid and pay off the balance faster,” she says.
However, she says the amount you can transfer to the balance transfer card will be capped at the credit limit. This means you may be unable to transfer your balance’s total amount.
“But I warn my clients that to do this; they must make a concerted effort to pay off their debt. If they don’t change their spending habits, it’s not worth it.”
Patel explains that once no or low-interest introductory offer ends, interest will accumulate on the balance at potentially much higher rates.
Key Considerations for Credit Card Debt Consolidation
For those already trimming their budget, Patel acknowledges that there’s no magic solution to offset the impact of inflation. You’ll need to reduce expenses further to increase your spending power. Decrease your grocery bills by opting for more vegetarian dinners, pause paid streaming subscriptions, or replace items in your makeup bag with tried-and-true drugstore makeup and skincare steals.
Another option is to explore opportunities to boost your income. This could include taking on a side hustle, reviewing job prospects, and seeking promotion opportunities.
Common Money Mistake: No Safety Net
One common financial mistake, according to Patel, is not preparing for the unexpected. “Everyone should aim to have an emergency fund to prepare for the what-ifs,” she advises. Life is unpredictable, but we can control how we mitigate risks. Even if you’re paying off credit card debt, it’s always essential to contribute to an emergency fund and save for the future.
Education is Power
People experience financial stress because they lack the tools or strategies to make and act on different decisions. “Increasing financial knowledge is your best defence against related stress and anxiety,” Patel says. Taking steps to improve your situation ( even small ones) will help you feel accomplished.