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Debt Management Tips for a Strategic Financial Plan

A student loan, credit cards, your car, or a mortgage − personal debt is a part of most people’s lives. Effectively managing debt is an important part of a smart personal financial plan, particularly for new parents with growing families.

The objective should be to optimize debt elimination based on the type of debt, length of time, interest rates, tax treatment, and other factors. You want to pay it off in an optimal way so you can allocate more to your saving priorities.

It is for these reasons that WealthyPlanet created one of the most optimized and interest-sensitive debt planning tools in the industry. It uses the first-ever application of consumption smoothing, a Nobel prize-winning economic model for spending and saving, now applied to strategic financial planning for consumers.

Wealthy Planet did a survey of 250 Ontario Moms with young kids regarding their views on financial planning, including de

bt. Here is what they told us along with some tips from John Podlewski, WealthyPlanet’s Founder and CEO.

Tip #1: Pay attention to debt before it becomes a problem

We asked Moms if their current financial plan incorporates a path to eliminate debt, and over half said their plan does not. This is concerning since Canadians have a lot of debt − for every dollar we earn, we owe $1.75 (Statistics Canada, March 2021).

Pie Chart: 52% of Moms do not have a financial plan with a comprehensive way to eliminate debt

John Podlewski is a big advocate of paying attention to debt.

“Unfortunately, what I see all too often is debt getting out of hand, requiring consolidation loans or worse − help from a trustee in bankruptcy,” he says. “I am shocked that 52% of respondents do not have a plan to eliminate their debt. I am also surprised that 48% say they do. Considering the high overall indebtedness among Canadians, my question would be, ‘what is your plan, and how comprehensive is it?’

“We believe WealthyPlanet has set the standard for a comprehensive path to eliminate debt in an online strategic financial planning platform,” he adds. “I would love to challenge those who said they have a plan to take our demo and compare their current plan to our standard.”

Tip #2: Have a plan to manage and eliminate debt over the long term

We asked the Moms what their financial priorities are and found 24% want to tackle debt elimination, 21% want to focus on retirement and investments, and 18% are focused on a home purchase. Meanwhile, 24% of respondents list all of the above as their top goals.

Pie chart showing financial priorities: 24% debt, 21% Retirement/Investments, 12% Budgeting, 18% Home Purchase, 24% All are Priorities

John loves this question. He thinks its important to have financial priorities, as priorities inspire action, unlike goals that may have less urgency. He says there is no reason why all these cannot be addressed in one overall, mathematical financial-life plan.

“We have created a financial planning solution that incorporates a holistic financial plan for the priorities of everyday Canadians through an online and secure consumer interface,” he says. “Debt is certainly a top priority. We apply consumption smoothing to household debt that is optimized based on prevailing interest rates and lays out the most effective way of paying off debt over the long term.

Tip #3 Incorporate debt management into a comprehensive and optimized financial plan.

A staggering 86% of all moms want one financial plan for their entire financial life, a desire that resonates with John.

Pie Chart: 86% of people would like their financial plan to include all avenues of their financial life

“A strategic financial plan should encapsulate all aspects and avenues of your economic life, including cash flow controls that allow you to automate and direct your spending pool in real-time,” he says. “We believe that looking at the entire cost and financing options, including how they fit into long-term priorities, is paramount.”

“I recently onboarded a young police officer who wanted to spend $18,000 on a new ATV recreational vehicle for family outings,” he recalls. “The actual cost of this decision, if he took these funds from his TFSA, would reduce it over time by $265,000! This is the loss of potential investment accumulation in capital markets over 30 years. We decided a loan at 6.5% interest with a monthly payment of $160 was affordable in his monthly cash flow.”

“Keeping the $265,000 in a long-term investment portfolio for retirement made this decision a win-win. This is how interest-sensitive debt planning empowers consumers to make better choices when optimizing their financial plan.”

 

 

WealthyPlanet gives everyday Canadians confidence about their financial future through a powerful and free online financial planning platform, cost-effective products, and money coach advice. 

 

Sign up to get a complimentary financial plan assessment and see what consumption smoothing can do for your financial plan.