Tips to help you get out of debt faster
While the household-debt-to-income ratio slightly decreased to 177.1 per cent in the second quarter of 2019, Canadians still owe $1.77 in debt for every dollar they earn. We have a whopping cumulative $2 trillion in household debt. And it’s not just a select few who are responsible for that enormous load. About 70% of Canadian households carry consumer debt.
Now, more than ever, it’s time to live within our means. Here are some tips to help you become debt free faster (not considering a mortgage).
Use the debt snowball method
The debt snowball method is a popular way to speed up how soon you get out of debt. You start by writing out all your debts from smallest to largest. You will then pay the minimum payments on all of them; but you’ll put as much as you can afford towards the smallest debt.
Once the smallest balance is paid off, put that extra money toward the next smallest debt. Over time, you will pay off your debts until you only have one left (the largest loan).
This method works so well because you can quickly pay off the first few loans. These “wins” motivate you to stick to the plan and chip away at your larger debts until you are debt free.
Eliminate the extras
If you want to get out of debt as soon as possible, you’ll need to cut your spending down to the minimum. This means getting rid of non-essential spending like gym memberships, eating out and cable TV. Put all that money towards your debt each month and you’ll be amazed at how quickly you begin to make real progress.
Keep in mind that this bare-bones budget is only temporary so that you can aggressively pay off your debt. Once you are out of debt (or close to it) you can re-evaluate your budget and start adding back some extras.
Earn a little more money on the side
You can ramp up your debt elimination timeline by bringing in some extra cash. You might want to find a part-time job or use your skills to do freelance work on the side.
It doesn’t matter how you do it, as long as you are bringing in some extra money each month, you will accelerate your debt repayment plan.
You might also consider refinancing your home to eliminate all your other debt.
Ask for a lower interest rate (or transfer your balance)
Call up your credit card company and negotiate a lower rate. If you’ve been a good customer and habitually pay your bills on time, it’s likely they will give you a better rate.
If not, look for a new credit card that offers a 0% APR for balance transfers. That means that for a set amount of time (up to 15 months) you won’t pay any interest on debt you transfer to the new card. There is often a small fee (3% is common) to do the transfer but if that amount is less than the interest you’d be paying during the promotion time frame, it’s well worth it.
When you no longer have to constantly catch up to your bills, you will have access to extra funds that you can use for long-term savings and for things you really want like home renovations or family vacations.
Being in a better financial position also comes with incomparable peace of mind because you are better prepared for a rainy day or a sudden hike in interest rates.
Are you aware of the current mortgage rules? Read about how they are impacting Canadians here.