The average Canadian owes an average of over $27,000 on things like cars, credit cards and other non-mortgage loans. This is a staggering number for most middle-class Canadians; in most circumstances, it's not possible to simply pay this off in a few months. If you are struggling with high levels of debt, you might feel overwhelmed, anxious and even depressed. The good news is that you might be able to pay down your debt quickly by following a few simple steps.
It sounds like common sense, but it's difficult for many people to declare a moratorium on all unnecessary spending. Create a budget that will allow you to pay for your groceries, gasoline and obligatory bills, and see what you have left over. If it turns out that you're not able to continue with your current lifestyle without relying on credit, then you've entered the danger zone of spending money that you don't have on a regular basis. If this is the case, you will need to seek help from a financial expert.
What if you're not sure how to even go about making a budget? Start off by recording your income and expenses every day for a month. This includes money spent on coffee, a magazine and anything else you buy. This will help you allocate money toward next month.
Pay Down Debt One Loan at a Time
Gather up all of your credit card statements, your car loan note and any other debts you have. Decide in which order you would like to pay these off. In general, there are two options.
- The first is to pay down the loan with the highest interest rate first. This is the way that will likely save you the most money, though the savings may be negligible.
- The second is to pay off the loan with the smallest balance first. This offers the psychological benefit of not getting bills from that creditor anymore.
It doesn't really matter which order you choose to pay off your debts; just pick a method and stick with it.
Try the "Debt Snowball" Method
One popular method for keeping your progress at a steady pace is to pay as much as you can toward the first debt and just the minimum payments toward all of your other credit cards and loans. Once the first is paid off, you go on to the next loan, adding the previous payment to the minimum payment you were already paying.
For example, if you were paying $100 each month to your first debtor and $15 to each of the others, once the first is paid off, you would then move on to pay $115 to the debt that was second in line (while continuing to pay $15 each month to the others). Once that one has been satisfied, you can pay $130 per month to the next, and so on.
Try Debt Consolidation
If you have many credit cards and loans, some agencies will help you consolidate all of the small payments into just one larger payment each month. The advantage here is that these agencies can often negotiate with your creditors and settle at lower amounts, allowing you to pay off your debt more quickly than if you had continued making payments on your own.
A potential disadvantage is that this type of negotiation might affect your credit score. Be sure to ask questions so you understand exactly what impact, if any, a debt settlement might have on your overall credit.
Drowning in debt is a frustrating, exhausting and stressful situation. If you can become proactive toward reducing your spending and paying down your loans, your financial status should improve relatively quickly. As a side benefit, you'll sleep easier knowing that the situation is under control.