Five strategies for eliminating personal debt so you can do the things that are truly important to you.
Canadians owe $1.79 for every dollar of disposable income in our pockets – we’re spending more than we’re making. And it can increase our stress if it prevents us from paying bills, putting food on the table or saving for the future.
Here are five strategies for getting rid of debt faster so you can put your money toward more important things:
- Make a budget and stick with it: To keep debt from ballooning further, put the brakes on non-essential spending. Knowing what you need to spend every month will help you make responsible spending decisions.
- Start with highest-interest rate debt: List all your debts (credit cards and loans for school, car, bank, personal, etc.) for a big-picture view of your situation. Pay at least the minimum on all your debts by their due date, with extra money going into the highest-interest debt (usually a credit card). This gets you in the clear faster and saves money overall. Some financial experts suggest paying off the lowest-balance loans first. The satisfaction of crossing them off your list can motivate you to stick with the plan. You’ll need to determine what approach works best for you.
- Consolidate debts: If you have a good credit rating, consolidate your debts at a bank or get a line of credit. This pays off all your loans immediately and leaves you with just one monthly payment, usually at a lower interest rate. It also simplifies your situation which could help reduce your stress.
- Find ways to earn extra money: If feasible, consider getting an addition job until your debts are under control or eliminated. Selling an asset you don’t need is another option for finding more dollars to help pay down debt.
- Talk to your creditors: Some debtors are flexible and will give you more time to pay or reduce their interest rate. In some cases, your credit card company may even transfer your debt to a lower-interest card. Explain the situation honestly to see what options are available to you.
Eliminating debt takes discipline, planning and time, but it can potentially happen faster than you think once you:
- Understand what you’re spending,
- Create a plan to address it and
- Put the plan into action.
Read more on this topic:
- Financial Consumer Agency of Canada, Dealing with debt
- Innovation, Science and Economic Development Canada, Ways to Reduce your Debt
- Debt-to-income ration ticks down to $1.65 for every dollar Canadians earn