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How Can You Change Your Mind About Necessary Debt?

Are you starting a new year worrying about your debt?

According to a recent Manulife survey, over half of Canadians feel that financial challenges take a toll on their mental or emotional health. One-third say they impact their physical health too.

If you’re determined to reduce your debt this year, one step that can definitely help with decreasing debt stress is changing your perspective. First, you’ll likely have to accept that having some debt will be necessary for you – at least for a period of time. Second, understand that your “necessary debt” shouldn’t be an excuse for adding to your consumer debt load.

What could be considered necessary debts? Some of these can be a mortgage, student loans, or an auto loan if you’re someone who requires a vehicle to commute to work. These can also be called “investment debts,” because they offer some value or return on your investment.

A mortgage is necessary for an overwhelming majority of Canadians, who probably don’t have the cash to buy a new house outright. A student loan pays off with better career opportunities and higher salaries after graduation. An auto loan, in certain circumstances, allows you to keep your job and get around.

Paying down these debts is still important. But it’s just as important to separate them from debts without reward, or what is called consumer debt.

Having necessary debt shouldn’t be a reason for carrying credit card balances or financing small purchases. Consumer debts almost always carry high interest charges and add to the cost of whatever purchase you’re financing. It’s hard to get ahead when you’re burdened with a lot of credit card debt or growing line-of-credit debt.

To put it simply, debt isn’t a zero-sum game. There are different types of debt, and each will have a different impact on your financial life.

In this podcast, BDO Licensed Insolvency Trustees from across Canada discuss ways to help you change your mind about debt this year.

What other tips do you have for changing your debt perspective? Join the conversation on social media by using the hashtags #DebtSolutions, #ChangeYourMind, #NewYearMotivation, and #NewYearsResolution.