Three proven ways to crush your debt in the new year
|Toronto Star 09 Dec 2019 at 07:05|
The bells are ringing — and these are not cheerful sleigh bells, they’re alarm bells. Statistics Canada has reported that Canadians now owe $1.77 in credit market debt (excluding mortgages) for every $1 of household disposable income (money that is left over once basic needs are paid for).
Not surprisingly, Canadians are concerned about how to get out — and stay out — of debt, especially with the spending pressure this holiday season.
Debt reduction tactics all boil down to one principle — efficiency. And, the most efficient way to crush debt is to pay it off as quickly as possible at the lowest possible rate.
Motivated to become debt-free? Tackle your debt with these efficient strategies:
Consolidate your balances at a lower rate
Consolidation is the best way to eliminate debt. Problem is, unless you correct the underlying debt-accumulation behaviours , you’ll repeatedly consolidate every few years and never get ahead financially. It’s essential that as you pay off today’s consolidated debts, you work to understand how to break free from bad spending patterns so that you never need to consolidate again.
The most popular consolidation methods are:
Before committing to any of these options, review the interest rates and compare the payment terms: how much the monthly or bi-weekly payments will be and the time it will take to become completely debt free. Obviously, the lowest rate at a payment amount that you can afford is best.
What if you don’t qualify for a consolidation loan?
Lending policies differ among financial institutions, but they all have one thing in common: they won’t give you a consolidation loan if you’re unlikely to pay it back (because you can’t afford the payments or if there’s a history of bankruptcy or consumer proposals).
If this is you, the debt reduction strategy you’ll need to follow is to first call each lender and negotiate a better rate and then focus on paying off the highest interest balance first, and then move on to the next highest interest rate, and so on. Whatever you do, don’t miss making the minimum payments as that will negatively impact your credit score.
If you simply can’t keep up, you need to speak to an accredited credit counsellor at a non-profit credit counselling firm.