How to repay your debts faster  

With the rising cost of living and inflation, you may have accumulated debts that you’re now unable to repay. Don’t panic. There are proven strategies for dealing with debt. Here are a few examples.

In short

Are you seeking effective solutions to reduce your debt and regain control of your personal finances? With a little discipline, you can repay your debts faster and regain some financial freedom.

Here are a few useful tips.

  • Apply the snowball or avalanche method. The first involves targeting small debts and the second focuses on the debt carrying the highest interest rate.
  • Make more frequent payments to reduce interest.
  • Cut down your spending by resisting impulse buying and reducing non-essential expenses!
  • Draw up a strict budget and stick to it.
  • Boost your income with a part-time job or side hustle.
  • Consolidate your debts into one loan at a lower interest rate.

Which method is best for repaying debts?

Two different approaches (the snowball method and the avalanche method) can help you to move forward. The choice depends on your situation and what motivates you the most.

  1. What is the snowball method?

    As we all know, drowning in debt often leads to feelings of depression and exhaustion. This method will allow you to gradually bounce back as you eliminate debt after debt fairly quickly. Here’s what you should do.

    • Make the minimum payment on each of your debts.
    • Start by paying down the debts with the lowest balance.
    • When you’ve settled one debt, tackle the next one and so on.

  1. What is the avalanche method?

    This involves focusing on repaying the debt with the highest interest rate. You’ll save more money, but it could take time until you see results.

    • Start by paying down the debt with the highest interest rate (probably your credit card).
    • Meanwhile, make the minimum payments on your other debts.
    • Keep applying this logic until you’ve reduced your debts.

Whichever method you choose, what matters is that you reduce your debt over time.

Bear in mind that there are “good” and “bad” debts. Good debts are an investment for the future (mortgages or student loans) whereas bad debts (credit cards and high-interest lines of credit) are simply…debts! For each repayment method, sort the good debts from the bad debts and repay the bad ones first.

Other solutions to get out of debt

  1. Make more frequent payments

    When you can, add even a small amount to your regular repayments. For example, use any unexpected income (bonus, small inheritance, etc.) to reduce your debt rather than spending it on something you can live without.

  1. Cut down your expenses

    We often purchase more than we need. By cutting out unnecessary expenses and saving money, you’ll recover funds you can use to repay a little more of your debts. For example, you could:

    • Check the flyers for special offers before heading to the grocery store.
    • Cut back your monthly subscriptions. Do you really need all of your paid movie and TV platforms?
    • Cut down on eating out.
    • Sell clothes and items you no longer use or organize a garage sale. If you need to buy something, opt for a second-hand item rather than a new one.
    • And above all, avoid impulse buying. Before every purchase, ask yourself: Do I really need this?

  1. Draw up a strict budget

    The best way to get your finances under control is to make a budget. This will allow you to determine how much money you have for daily expenses and how much you can spend on repaying your debts. Be disciplined and always stick to your budget.

  1. Find additional sources of income

    Many stores are short of staff. Take advantage of this by offering your services and making some extra income! Whether you help out in a restaurant or convenience store or walk your neighbour’s dog, extra income should not be sneezed at.

  1. Take out a loan to repay your debts

    It might make sense to combine all your debts into one loan at a lower interest rate. This is called debt consolidation. It allows you to eliminate higher interest charges such as those on your credit cards and use the difference to make larger payments that reduce your debts faster.

When should you ask for help?

If, despite your best efforts, your debts have become unmanageable, it’s time to take action. Call on one of our Licensed Insolvency Trustees if:

  • You can no longer make the minimum payments on your credit cards.
  • Your debts are growing faster than you can pay them off.
  • You’re using your credit card to repay other debts or for everyday expenses.
  • You’re receiving calls from debt collectors or fear your property will be seized.
  • You feel stressed, anxious and ashamed when you think about your debts.

How can you avoid falling into debt again?

By using the strategies outlined above, you’ll gradually reduce your debts. At the same time, you’ll learn good financial habits that will help you stay out of debt. To achieve this:

  • Review your budget
  • Always spend less than you earn

Taking control of your finances isn’t so hard when you do it one step at a time. However, if you struggle with applying these strategies or can’t see your way out of debt, call on one of our Licensed Insolvency Trustees. They can help you find a solution that’s tailored to your reality. They can also explain other options such as a consumer proposal and bankruptcy.

 

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