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Breaking the cycle

Balancing savings and debt repayments can feel like an oxymoron at times -- no matter what you're doing with one, it feels like you're neglecting the other.

It's a struggle familiar to many Canadians trying to save for a rainy day, retirement or a child's education while carrying mortgages, credit card balances, lines of credit and auto loans.

As people work to keep up, it's usually savings that suffer. According to a recent report by TD Bank, 38 per cent of Canadians surveyed said they had no savings at all. The main reason is that most of disposable income is going towards debt repayment, including mortgages, credit cards (12 per cent admitted to shopping beyond their means) and auto loans.

And it's about to get worse. In May, Bank of Canada Governor Mark Carney warned consumers to curb spending. The Bank of Canada's trendsetting overnight lending rate is still 1 per cent, but with the latest reports showing inflation of 3.3 per cent, Carney is expected to increase rates in September, making it increasingly difficult for those already struggling with debt.

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Consumer debt the culprit
More Canadians are living close to the edge, according to a recent study from credit rating agency TransUnion Canada. Debt loads continued to climb in the first three months of this year and Canadians on average now owe $25,597 on their lines of credit, credit cards and auto loans -- an increase of 4.5 per cent over the same time last year.

Finding balance
Many (33 per cent) don't have enough money to cover living expenses, such as rent or food, according to the TD survey. It's no wonder then that 54 per cent say it's a struggle or impossible to save.

A struggle, perhaps; impossible, no. Here are 10 tips to get you started:

1.) Start an emergency fund: Put aside enough to cover three to six months expenses. While it might seem strange to save with outstanding debt, this is where saving takes precedence. Lose your income without an emergency fund and it's a quick downward spiral that puts at risk your home or other assets and destroys your credit rating.

2.) Pay yourself: The best way to save is to pay yourself first. Arrange to have 5 to 10 per cent of your income automatically withdrawn from your main account on pay day and whisked into a high-interest savings account: You won't even miss it.

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-- Posted June 10, 2011
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