No matter your financial situation, whether you’re a business owner with debts or an individual struggling to settle their bill, effective strategies can help you make progress.
Begin by creating a budget and considering what you can realistically pay each month. Afterward, search for ways to reduce spending and boost savings.
If you are unable to pay your debts, consider talking to a credit counseling agency or a bankruptcy trustee. Personal bankruptcy in Canada can provide a solution to overwhelming debt, but it is not the only option. Depending on your circumstances, other options, such as a consumer proposal, may be available.
1. Make the Minimum Payment
Making the minimum payments on your credit cards each month may help keep your account in good standing. But if you miss a payment, your issuer could report it to credit reporting agencies and your credit score could suffer as a result.
Thankfully, credit card issuers must display a chart on their monthly statements that illustrates how long it will take to pay off your debt and how much interest you’ll incur if only making minimum payments. It’s an effective tool that helps consumers recognize how essential it is to make more than the minimum payment towards debt repayment.
2. Focus on the Highest-Interest-Rate Debts
One of the best strategies for debt repayment is prioritizing high-interest rate debts. This approach, commonly referred to as “avalanche method,” involves setting aside extra money towards paying off these high-interest debts first until they’re all cleared away.
Borrowers can prioritize their debts based on interest rate by creating a spreadsheet of all outstanding obligations. Doing this allows them to prioritize payments according to lowest-interest debts and make minimum payments accordingly.
This strategy may not be suitable for borrowers who don’t have enough extra money to invest in paying off high-interest debts. On the other hand, those with multiple high-interest debts and wanting to consolidate them could find this approach beneficial.
3. Make a Budget
One of the most successful strategies for debt elimination is creating a budget. This helps you understand how much you spend each month on fixed expenses like rent or mortgage payments, utilities, health care and transportation fees; plus it gives you insight into where any surplus money goes.
Furthermore, it encourages you to save enough money each month for goals such as an emergency fund or vacation.
Budgeting can be done in many ways, from apps and websites to traditional spreadsheets. The important part is finding a method that works for you and sticking with it.
4. Use the Debt Snowball Method
The debt snowball method is an efficient way to pay off your debts. This strategy involves paying off the smallest debt first and then using that money for payment on subsequent debts.
People who take pleasure in celebrating small victories and are motivated by progress will find this option to be a great choice. When your debts start to diminish, it makes it easier to stay on track with repayment and maintain motivation levels.
However, this strategy may not be ideal for everyone. If your debts have high interest rates, for instance, then it could not be the most efficient way to tackle debt removal.
Another option is the debt avalanche method, which prioritizes paying off higher-interest debts first. This strategy can save money in the long run since it reduces your overall interest payments over time.
5. Make Extra Payments
One of the most effective debt repayment strategies is making extra payments. Typically, lenders will apply part of your payment towards interest and fees; however, if you specify that any extra money should go toward principal, this can help accelerate debt repayment more quickly.
Making extra payments can be daunting, but for many people the effort pays off. Whether from a work bonus, tax refund or inheritance, taking the extra money and making one larger payment each year could reduce the length of your debt by several months or years. Be sure to plan ahead and budget for these payments so that you don’t run into issues later. Additionally, if you do decide to take advantage of this opportunity make sure to set aside some funds in an emergency fund so you won’t need to rely on credit again when unexpected expenses arise.
In conclusion, having a plan for debt repayment is essential for getting out of debt and achieving financial stability. Using a combination of the strategies mentioned above, such as the Debt Repayment & Consumer Proposal Calculator, budgeting, and making extra payments, can help you make progress towards eliminating your debt and eventually, achieving financial freedom.
