February 11, 2022
Discover smart debt repayment strategies to pay off debt faster using methods like debt consolidation or the snowball strategy. See what’s the best way for you to become debt-free.
Debt repayment is one of the most challenging aspects of managing your personal finances. Many of us simply want to pay it off quickly, but what is the best way to do this? What if you have multiple debts?
Finding the right repayment strategy for your unique situation can help you become debt-free sooner and lower your costs. There is no easy, quick-fix solution that works for everyone. It often depends on how much you owe and what kind of debt you have.
Before tackling your debt, take time to organize your debts into categories that will help you distinguish between them.
List every debt you have, including credit cards, car loans, personal loans, student debt, and so on.
For each, note the balance, interest rate, minimum monthly payment, and due date. This step helps you prioritize which debts to address first and prevents missed payments.
It's then a good idea to break your debts down into secured and unsecured debts.
Secured debts are backed by something physical, such as a car loan or a mortgage. If you don’t make payments, the lender can seize your car or home.
Unsecured debts, like credit cards, personal loans, or student loans, don’t have collateral but often come with higher interest rates.
Doing all this will give you a clear picture of what kinds of debts you have, what you owe, and who you owe it to. If you have car payments, you will likely want to prioritize them along with credit card debt. If you don’t have a car, you may think that your credit card and student loans are your biggest issues.
Once you understand your debts better, you can then find the best way to tackle them. The best way to do this is to look at your spending habits.
Check your online bank account to get an exact figure for how much money you make each month.
Then see where your money is going. You’ll have some fixed costs, such as rent or a mortgage, that don’t change monthly, as well as others that stay about the same, such as groceries.
You’ll then likely have some costs that fluctuate, for example, how much you spend on food delivery or a night out.
Doing this will help you see where you can cut back some of your spending and put more money toward your debt repayment.
Once you know how much you can cut from your spending budget and move to paying off your debt, it’s time to choose the best repayment strategy for you.
The avalanche method is one of the fastest ways to pay off debt while saving you money in the long term.
This strategy focuses on tackling debts with the highest interest rates first, which helps prevent those balances from growing due to interest payments.
While effective, the debt avalanche requires discipline and patience, as the first debt may take the longest to pay off.
How it works: Find the debt you have with the highest interest rate. In the avalanche method, this is the debt you will prioritize first.
Next, pay as much as you possibly can on this debt each month while ensuring you can pay at least the minimum amount on your other debts.
Once this debt is fully repaid, move to the next highest interest rate debt. Repeat this process until all your debts are eliminated. It may take a while to pay off the first debt, but you’ll save more money this way.
This strategy is best if you can make larger payments on one debt while still affording to pay at least the minimum on your smaller debts. It’s also a good idea if you have lots of high-interest debt, such as credit cards or payday loans.
The debt snowball method is a repayment strategy designed to build motivation and momentum as you tackle your debts. Instead of prioritizing by interest rates, you focus on the size of each debt.
How it works: List all your debts from smallest to largest balance. Put as much money as possible toward the smallest debt while making minimum payments on the rest. Once you’ve paid off the smallest debt, move on to the next smallest.
This method is meant to give you motivation and easy wins quickly. You should feel a sense of accomplishment by removing your smallest debt. The disadvantage is you could pay more in interest over time.
If you feel a little overwhelmed by your debt struggle to stay motivated paying them down, then this method can help. You should be able to remove your smaller debts quickly and be motivated to move on to larger ones.
Do you have a lot of high-interest debts? Or more debts than you can keep track of? Debt consolidation can help make your repayment easier.
How it works: Debt consolidation combines multiple debts into one single payment. It's meant to simplify your finances by replacing several monthly payments with one, often at a lower interest rate than that of a credit card. You can apply for a debt consolidation at any major bank.
By consolidating your debt, you may save money on interest, reduce the stress of managing multiple payments, and make it easier to pay off what you owe.
Debt consolidation works best if you have multiple debts and struggle to keep track of them. If you have multiple high-interest debts like credit cards or personal loans, debt consolidation can help you get a lower interest rate and save you money.
As we’ve seen some methods not only help you repay debt faster but also save you money in the long run. Others may cost more in the long run but may be more affordable now. Which is right for you will depend on how much you can afford to spend on your debt monthly.
It doesn't matter which repayment plan you use as long as long as you are discipline and actively reducing your overall debt. Any repayment plan is better than no repayment plan.
If you can’t handle your debts on your own, then speaking to a Licensed Insolvency Trustee can help. Trustees are licensed debt processionals who can help you examine all your repayment options. They can assess your full financial situation and recommend a way for you to become debt free.
One solution they may suggest is a consumer proposal, which can reduce your monthly payments by up to 80%. The Trustee will negotiate with your creditors on your behalf to come to a fair solution and work to have a portion of your debt forgiven.
Licensed Insolvency Trustees are the only professionals in Canada legally allowed to file a consumer proposal on your behalf. They adhere to strict ethical rules of confidentiality and conduct.
The first consultation with a Licensed Insolvency Trustee is free of charge.
Contact us today if you are struggling with debt and need help. Our team will be glad to help you find a solution.
February 11, 2022
Discover smart debt repayment strategies to pay off debt faster using methods like debt consolidation or the snowball strategy. See what’s the best way for you to become debt-free.
