What would your life be like if you weren’t dragged down by minimum payments? You can’t reach your goal if you don’t get started, so get started with these tips for paying off all your debts.
Before getting started, you need to first know exactly what you owe.
Start with the following three steps:
1. Order your credit bureau from Equifax Canada https://www.consumer.equifax.ca/personal/education/credit-report/how-to-get-a-free-credit-report/
2. Find out what your credit score is and how to improve it
3. Not all creditors report to Equifax, so review your bank statements as well for any regular debt payments
Set a Debt-Free Deadline
After assessing all your debts, you will have a better idea how long it will take for you to pay off all the debt. List all your creditors, balances, interest rates, monthly payments and due dates. Add all the balances together and divide that by the number of months required to meet your DEBT FREE Deadline.
Theoretically, that is how much you would need to pay each month to reach your target date. Keep in mind that accounts have varying due dates and minimum payment amounts so make sure your minimum payment is always made on time.
Choose a Pay-Off Approach
Decide how you wish to go about paying off your debt. Some people choose to pay extra on accounts with a higher interest rate while still making the minimum payments on those debts with a lower interest rate. Others add a little extra every month to the bill with the smallest balance and attacking those first while making the minimum payment on higher debt amounts.
Once you pay off one bill, add the minimum payment amount you would have paid to that account to the next account with the lowest balance. This principle is applied each time you pay off a balance until your debt free. This strategy is known as the debt snowball. Whichever method you choose to use, set up automatic payments for the minimum on all your highest interest/lowest balance accounts.
Lower your interest rates.
One way to reduce the total amount you will need to pay off is to lower your interest rates on those debts. Try these approaches:
• Consolidate loans
• Request lower interest rates from your credit card companies
• Transfer balance wo a card with a lower rate; and cut up the original card to avoid adding more debt
Establish an emergency fund.
It may seem counterintuitive to sock away a lot of money when you are trying to tackle debt. But saving the equivalent of three to six months income can help you avoid getting deeper into debt.
Unexpected bills like medical bills, home or auto repairs can derail even the most well-conceived financial plan. An emergency fund could save you from putting thousands of dollars on your credit card, sending your get-out-of-debt plan into a tailspin.
If three to six months’ wages seem an out of reach amount, consider saving as much as possible. Another alternative is to sell unused items online or find some other income-boosting side hustle.
Tweak your plan as needed.
Whether you are more motivated by math or momentum, you may find that your original plan isn’t working as well as expected. Don’t be afraid to try a different approach as you’re going along. You can always try something new or revert back to the original plan.
You might also qualify for a debt consolidation loan or better interest rates as your credit score improves and your balances go down. You can’t go wrong if you make on-time payments on all your bills and supplement the minimums on targeted accounts.