132 – Breaking the Cycle: Strategies for Managing Debt Amidst Daily Expenses

Wayne Kay 00:04
Breaking the cycle – strategies for managing debts with all our daily expenses. That’s our topic today on the Debt Matters podcast. We help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada.

I’m Wayne Kay and in the show today, we’re going to talk about financial cycles. What do you mean by breaking the cycle? What does that look like? Are there some common strategies for managing debt? What expenses can we look at giving up or minimizing? And you probably have a few ideas right now. What kind of mindset should you have moving forward to have healthy finances?

That and more today with my guest, Derek Chase from Chase & Associates Licensed Insolvency Trustee with office locations throughout Vancouver Island, the Sunshine, and the BC North Coast. Derek, thanks for being here, as always.

Derek Chase 01:05
You’re welcome. I really look forward to these chats and I’m excited about today’s topic.

Wayne Kay 01:10
Oh, it’s a wonderful one because we’re going to actually help more people. A lot of people are going through this whole issue where their debts are increasing and daily expenses seem to be creeping up as well. And that’s a pretty common thing for a lot of Canadians.

Derek Chase 01:30
Yes, for sure. The pressure is really on the combination of inflation pushing up the cost of living and interest rates having risen is pinching as well. And that’s a bad vice grip to be in.

Wayne Kay 01:43
Yes, and then you throw in rental. The cost of rent these days, it’s insane to me. When I consider back to the old days of what I used to pay for rent compared to what it’s paying nowadays. It’s shocking.

Derek Chase 01:57
Yes, it really is. It’s a real social problem because you shouldn’t be paying that high a percentage of your monthly budget towards rent. It’s just not going to be feasible in the long run.

Wayne Kay 02:12
And then groceries. I went and picked up a bag of fruits and vegetables and one bag and it was $77. And I remember thinking, hmm, $77 for a bag of groceries. Now, isn’t that something? But. And I’m lucky because it’s just my wife and I.

We’re just really walking right into that debt, that debt pain. I feel for everybody who’s going through this situation where that debt just keeps going up. And how do you get out of that, Derek?

Derek Chase 02:46
Well, many financial answers start off with, it depends. It really does depend on what kind of scale we’re talking about. And a lot of factors go into how you get out of it. So it really does depend where you are as far as the, the size of the debt and what amount of your budgets getting eaten up by making payments and that type of thing. So how do you get out of it? I can’t really tell you that without knowing more information about where you are on that scale.

Wayne Kay 03:20
Yes, or is it a cycle? You know, I’ve heard of financial cycles. What is that? Are there different kinds of those?

Derek Chase 03:30
Yes, there are different types of cycles. And, if you want to, if you are in a cycle financially and you want to break that cycle, I suppose you really need to be clear about what sort of cycle we’re talking about.

One thing we really see quite often is someone coming in and talking to us and they start talking about payday loans and how they’re just, they’re rolling one loan into the next and they’re getting an additional payday loan. So it’s just like this washing machine cycle of payday loans that just keep going round and round.

Another example would be perhaps someone saying, well, I take money out of this line of credit to pay that line of credit, and then have more room in the line of credit to spend again and it just keeps going around and around. So you’re kind of stuck just paying interest and potentially at a higher and higher rate. So that’s a tough cycle.

But another cycle that I really get a little bit excited about being able to change is when someone talks about an intergenerational cycle where they reference the fact that, hey, maybe my dad was in financial difficulty.  I remember he did a Bankruptcy filing or my parents always fought about money, something along those lines.

And when you have a chance to change that, break that cycle. That’s really cool because, maybe those people you’re talking to would be able to have better info for their kids and so that that type of cycle changes. But, yes, recognizing that you’re in a cycle and if it’s a negative one, taking steps to break it is a fantastic thing to do. So we should talk about some strategies for doing that.

Wayne Kay 05:21
Yes. And it’s not going to be easy. I think people need to know there is no easy way out here. You’re going to have to do the work. You’re definitely going to have to tighten up the purse strings, if you will. So let’s talk about how you get started with some common strategies here for managing debt.

Derek Chase 05:39
Just about any financial article or podcasts that I’ve listened to, there’s some very common strategies that are often referred to, and it’s because they’re true. You can’t really make any decisions without knowing where your money is going. So you have to establish some sort of foundation or benchmark or just an awareness of what you’re spending on different things. Making a budget or making a cash flow statement is very important.

Other common strategies that you hear is something like, pay off your highest interest rate debt first because your other debts are at a lower interest rate and they’re not climbing as fast. Or, or maybe you use the approach where, well, pay off your smallest debt first because it’ll give you a real feel of accomplishment and kind of get the momentum going in your favor. So those are very common.

But if you had to look at your cash flow and say, what can I change in my month to month expenses? Well, firstly, you have to understand what they are. You’ve done that by putting pen to paper or doing some sort of spreadsheet. And as you go through those expenses, you’re not really looking for hitting the home run. You’re really just looking to chop out the $10 and $20 and $50 amounts that just kind of drain your budget.

Some of those expenses that I like to pay attention to in my own budget, I always like to check how many subscriptions I’m paying in our household because those can add up in a hurry. When you think, oh, I’ll sign up for this particular service, it’s free, and then it’s only $7 a month. Some other common ones that have stood the test of time are how much are you spending on buying coffees, how much are you spending buying lunch? That type of small expense.

I know a lot of folks have been dropping their cable tv and just going with some streaming service and even looking at things like your cell phone. Cell phone plans are something that are quite dangerous, really, because we just get used to it.

And if you get used to paying $120 for your cell phone when you could be paying$ 60 – these are things that you need to review, especially now, where there’s pressure to get that bag of groceries and change your cell phone plan, and that’s another bag of groceries a month.

Wayne Kay 08:18
And let’s keep in mind, most people are paying for a family, they’re paying for cell phone bills so it can get extremely high. So that’s a great one.

That’s a great one to look at because I hear about some people’s phone bills and I just about fall over when I’m paying $36 for, for 30 gigs. That’s all. That’s more than enough. And I still think that’s too much, Derek, because I’m following your plans here. You know why?

Derek Chase 08:49
I haven’t heard of anyone going lower than $36. So you’re the winner?

Wayne Kay 08:54
I keep hoping. But yes, those are great points. But it comes down to is so important – as you said, everybody’s talking about these same things. Why? Because they work.

How many people come into the office and you ask them where they’re spending their money that they actually pull out the piece of paper and say, here you go, here’s what it looks like? Because most of us never do that.

Derek Chase 09:15
That’s true. I think the vast majority of people don’t do that for whatever reason. It’s not a super exciting thing to do, but it’s just one of those life lessons that you have to get around to getting your head around and paying attention to. Because the practicalities of living in 2024 or that you can’t have slippage or money wasters in your budget, you have to be more precise than that if you’re going to make any progress. And so, yes, it’s very important.

Wayne Kay 09:51
I don’t know, maybe it’s just me or I’m sure you feel the same way. I get excited when I just found that $34 plan or whatever it was $36 – for my cell phone.

But if all of a sudden you’re just barely making it and you have like $1 left, then your challenge is to have $2 left and then $5 left and $10 left. And I take those as wins. I get so excited by doing that and then eventually starting to see little, little growth happen in your little savings accounts. It’s super exciting once you break that habit.

Derek Chase 10:32
It’s true. And it’s so much about momentum. And even if you’re building momentum, $5, $10 a month, it’s growing and you start to develop a mindset along those lines and it just starts to feed on itself. And before you know it, you’ve got more than you think in your bank account.

Certainly. I think we should talk a little bit about that, about having the right mindset when it comes to this sort of environment. Because a lot of times I think people have grown up with expectations of having the world and having the right mindset to address this current setting that we’re faced with going forward – I think that’s very important.

Wayne Kay 11:21
So when you explain what you’re talking about, when you’re having the right mindset, what does that look like?

Derek Chase 11:28
Yes, it’s good to put some thought into that and to think about that a little bit. I was just talking with a couple today and talked about increasing their financial literacy and some strategies to do that.

We’ve done a previous podcast on that. But they’re taking on the mindset now that they’re not going to be afraid of this, that they’re going to, they’re going to take some action to learn, to watch some good YouTube content, to read a few books, to take some action to build their financial literacy, and you have to,

I’m also reminded about, you’re probably familiar with Warren Buffett, who was a famous investor and his business partner passed away recently. His business partner was Charlie Munger, and he was famous for saying, you’ve got to save up this initial nest egg. It’s so important to save up this initial nest egg. You’ve got to do whatever it takes to get this initial amount.

He said, you don’t buy anything unless you have a coupon for it. If you’ve got to get somewhere, you walk or bike before you drive – you really have to go for it to initially get this momentum building. And then over time, the time is on your side when you’re saving that little bit every month and building.

I’ve referenced on the show many times that finances and debt has this huge momentum component and, and it’s true. So what are you going to do to start pushing your momentum in the direction that you want? And that’s a question I think we all have to ask.

Wayne Kay 13:30
Okay, so getting the right mindset, I just like that. And there are a lot of stories about people who as a couple, maybe even as an individual, have said, okay, I am going to do that. I’m going to build this nest egg as fast as I can, and I’m going to do without for the longest time. And then their friends are like, why aren’t you coming to Vegas with us? Let’s go to Mexico. Let’s go here, let’s go there.

They’re traveling everywhere and doing it all on credits and, and that’s great. But all of a sudden some kind of a health thing happens or a job loss, all of a sudden you get laid off, then what do you do? So this is kind of critical information. If we could, and I wish I could go back and do that.

Derek Chase 14:17
Yes, it is. You know, I don’t want to come across as suggesting that everyone live in a tent and never spend a dollar. That’s, that’s not the point.

There’s times to celebrate in life and really enjoy, enjoy one another and enjoy, a birthday or whatever. But I think for the ongoing month to month, yes, there’s a balance there to be able to enjoy life but still have a mindset of what am I going to do to make my finances better when you can just reflect on that a little bit, I think it makes a lot of sense and I think it’s doable and I think a lot of people can make some changes that will help along that journey.

Wayne Kay 15:12
Right. So when they’re going through that debt pressure, like right now, what do they do when it’s just too much?

Derek Chase 15:18
Well, yes, back to when we started, when I said it depends where you’re at to fix your finances. I mean, you can be at a point where the momentum’s gone too far down the negative pathway and, no matter what you do, you’re not going to catch that high interest rate loan or you’re not going to catch your income tax problem or you’re not going to be able to change things on your own.

And fortunately, you don’t have to suffer with that your whole life because the federal governments, our parliament and Ottawa have made laws that allow people to reset their finances. So part of what we do is help people in that setting and whether it’s making a Consumer Proposal where you’re making your creditors an offer which has become very popular across Canada, especially in BC. It’s a tremendous way to consolidate your unsecured debts into one affordable payment.

You might need to take a step like that in order to get back to a place where you can do some of these other strategies to help increase your savings and investing power. So it’s, if you’re in a spot where it’s just too overwhelming right now and you’re getting collection calls or there’s too much debt, you need to reach out to a Licensed Insolvency Trustee and have a meeting to see what might be a wise thing to do.

Wayne Kay 16:48
Right. And that’s absolutely free, especially when you contact Derek and the team, free consultation and then go to bankruptcytrusteebc.ca for more information. Derek, always a pleasure. Thanks very much for all the information on today’s show. I sure appreciate it.

Derek Chase 17:10
It’s been great, Wayne and I hope everyone out there listening today, if they’re in that cycle, they get a chance to break it soon.

Wayne Kay 17:16
Well, thanks again, Derek Chase, for all the great information. And that is it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcast from. And of course, for more information, you can always check out debtmatters.ca. Thanks for listening.