Being in debt can be stressful and burdensome, especially if you do not have money to offset your debt. Understanding the types and amounts of your debts will help you develop a customized debt repayment strategy.
You don’t have to drive yourself frantic by paying down debt with every cent you earned, what you need is a strategy. Preferably one that suits your financial situation. This article will be sharing ten tips on how to pay your debts in Canada.
Helpful Ways to Pay Your Debt
1. Budget Planning
Having a budget can help you make better financial decisions. Budgeting will provide you with a rough estimate of how much you can spend toward your debt each month.
Don’t try to manage your spending in your brain; writing down the numbers allows you to view the broader picture without relying on your recollection.
Budgeting can also assist you in determining where you might be able to save money to pay down your debt. Remember that most debts are due monthly, and you’ll be penalized if you don’t pay them on time.
If you want to pay more toward your debt, having that money set aside in your budget is a good idea. You can also leverage some of the budgeting apps available.
2. Cost Cutting
Examine your monthly bank statements to discover how much money you spend each month. Evaluate your needs and wants before making any purchase. Ask yourself if this is a cost you can live without; if it is, it is advisable to skip it.
Cost-cutting might be a bit difficult if you are an impulse spender, but bearing the goal in mind – which is to save towards paying your debt should do the trick. Ultimately, you can add back expenses you cut off after you are debt-free.
3. Extra Income
Earning more money might drive you closer to your financial goals. With an extra source of income, you will have money available to pay for your debt and still have some left to cater for other expenses.
Getting a second job, freelancing, or selling online are excellent ways to generating revenue. Some Uber drivers in Canada make up to $20,000 in extra income yearly.
However, before getting a side hustle, it is advisable to examine the tax ramifications of having a side hustle and any applicable deductions or obligations.
4. Pay on Time
Late payments can hinder your debt repayment efforts. You will have to double your payment effort in subsequent months following a late payment. It is advisable to make timely payment of your debt. Bear in mind that late payment attracts a penalty which will, in turn, affect your debt payment.
5. Debt Relief Programs
If you are in a difficult financial situation and your capability to repay your debts is more complicated, seeking a debt relief programme may be the option for you.
A debt settlement program is usually the last resort for most people since it requires you to stop making payments and work with an organization that holds your funds in escrow.
The organization will mediate on your behalf while negotiating a settlement with your creditors, which can take up to four years. Note that using this method to pay your debt can damage your existing credit score.
6. Lower Interest Rate
A high-interest rate makes it more challenging to pay off debt since a more significant portion of your monthly payment is used to cover interest costs.
Lowering your interest rate reduces your monthly interest payments and helps you pay off your debt more quickly. You can acquire a cheaper interest rate if you have a solid credit score and a strong payment history.
7. Debt Snowball
The debt snowball strategy focuses on paying off the smallest debt first while keeping all other obligations at a minimal monthly payment. As each debt is paid off, the funds used to pay the previous debts are “snowballed” and applied to the next smaller loan.
Apply this procedure repeatedly until you finally pay off your debt. Debt Snowball is an excellent way to pay your debt as it provides quick results.
8. Debt Avalanche
The debt avalanche prioritizes paying off your debt with the highest interest rate first while paying the bare minimum on all other debts.
Once you pay the debt with the highest interest rate, the extra repayment money will pay off the next highest interest debt. You can repeat the process until all your debts are paid off. The avalanche strategy can also help you pay off debt faster by a few months.
9. Monthly Instalment Plans
Monthly Instalment Plan is one of the most effective ways to eliminate credit card debt. If you cannot settle your credit card balance, contact your financial institution and request that the balance is converted into a monthly installment payment.
Note that your financial institution will impose a monthly interest rate of 2% to 3% to grant the installment option. There is also a processing charge of about 1-2% of the outstanding balance.
These monthly plans can be placed in person at a bank branch, paid by check, or debited immediately from your account using the bank’s automated payment feature.
10. Debt Consolidation
Debt consolidation enables consumers to consolidate their debts into a single loan with a single monthly payment and, in many cases, at a cheaper interest rate. When paired with other cost-cutting measures, consolidating debt can help people escape the paycheck-to-paycheck cycle.
Consumers can utilize debt consolidation to pay off a small debt in one go by taking out a larger loan. Once you consolidate your debt, instead of paying many payments to different creditors, all you have to do is make one payment. Consolidating your debt helps you avoid incurring new debt while offsetting the consolidated debt.
Although it can be overwhelming to settle debts, the sooner you can offset them, the sooner you will pay them off. You can contact a non-profit credit counsellor for free if you need professional help to get started.
A debt counsellor will evaluate your financial situation and suggest suitable options to help you attain your goals. Your debt repayment strategy will be more effective if you focus on one bill at a time.