Are you struggling to pay off your debt or facing a major debt repayment you are not sure how to navigate? If so, you’re not alone. Millions of Canadians are in the same boat. But don’t worry – there are plenty of ways to pay off your debt faster.
As Licensed Insolvency Trustees we are in a unique position in that we see the challenges people face when trying to pay off their debt. We also have a lot of experience helping people get out of debt and we’ve seen what works and what doesn’t. Let us help you learn the best ways to pay off debt faster.
In this blog post, we’ll share ten easy tips that can help you get out of debt sooner rather than later. These can be used both individually and collectively to fast-track your results. If paying off debts is a priority to you keep reading to learn more!
Make a budget and stick to it
Any financial planner will tell you that one of the most important steps to take in managing your money is to create a budget and stick to it. A budget is simply a plan for how you will earn and spend your money over a period of time. It can help you to stay on track with your finances and make sure that you are not spending more than you are earning. Without a budget, it is all too easy to overspend and find yourself in debt.
Creating a budget can be daunting, but there are many resources available to help you get started. Once you have created your budget, make sure to review it regularly and make adjustments as needed. By following a budget, you can take control of your finances and improve your financial situation.
Steps to creating a budget
Making a budget may seem like a daunting task, but it doesn’t have to be. By following a few simple steps, you can easily create a budget that will help you save money and keep your finances on track.
Calculating your income
The first step is to calculate your income. This includes all sources of income, such as wages, interest, and investments. Once you know how much money you have coming in, you can start to figure out how much you need to spend each month.
Expenses (Spending Habits)
Next, take a look at your spending habits. Where are you spending most of your money? Once you have a good idea of your spending patterns, you can start to allocate your expenses into different categories. For example, you may want to create categories for eating out which includes coffee, take-out, and restaurants. Or you may want to be more specific and separate those if you want a better picture on them later. Budgets can be as rigid or as flexible as you desire – but one thing is true if what you are doing isn’t working, switch it up.
Putting it together
Once you have your income and expenses figured out, you can start to put together your budget. Start by allocating money for essential expenses, such as housing and food. Then, factor in your non-essential expenses such as eating out and subscriptions.
Now that you’ve created your budget, it’s time to stick to it. This may require making some changes to your spending habits. But by following a budget, you can take control of your finances and improve your financial situation. Now, if you are struggling with budgeting to get out of debt you may want to consider more severe options.
Create a Debt Reduction Plan
When it comes to getting out of debt, there is no one-size-fits-all solution. The best way to reduce your debt will depend on your individual circumstances. However, the best place to start is by creating a debt reduction plan also known as a debt repayment plan.
First, take a look at your financial situation and figure out how much debt you have and what your minimum monthly payments are. Then, use the budget you created in the previous tip and see where you can cut back on spending to free up more money to put towards your debt.
Once you have extra cash available, you can start making extra payments on your debts. If you can’t afford to make large additional payments, even making small additional payments can help to accelerate the process of getting out of debt.
Most importantly though, is that you need to create a plan that will actually work. There is only a finite amount of money coming in and you shouldn’t be hoping that you end up with enough money to pay your bills. If your budget says you are falling behind, you should look up professional debt help services.
PS – Debt reduction plans shouldn’t be confused with debt management plans!
Pay off high-interest-rate debt first
When it comes to paying off debt, there are a few different strategies that people can use. One popular method is to focus on paying off high-interest debt first. The reasoning behind this is that the more interest you pay, the more money you lose each month. By targeting your high-interest debts first, you can save yourself a lot of money in the long run.
Another benefit of this approach is that it can help you pay off your debt at a much faster pace. The sooner you get rid of your high-interest debt, the less money you’ll have to pay each month in interest charges. As a result, you’ll have more money available to put towards your other debts.
Pay more than your minimum payments
If you have credit card debt, payday loan debt, or any other type of high-interest debt, make sure to pay more than the minimum payment each month. This will help you to pay off your debt faster and save money on interest. While it may be tempting to only make the minimum payment, remember that doing so will only prolong the process of paying off your debt and end up costing you more in the long run.
If you can, try to double or even triple your minimum payment each month. You may need to cut back on other expenses to do this, and it might be a struggle but if your budget says you have the wiggle room then aggressively tackle your debt down.
Don’t forget an emergency fund
While this article is about getting out of debt it is still highly recommended that you save up an emergency fund before you aggressively tackle your debt.
Get rid of unnecessary expenses
To free up more money to put towards your debt, you may need to get rid of some unnecessary expenses. Take a close look at your budget and see where you can cut back on spending. For example, you may be able to save money by eating out less often or canceling your gym membership.
Every bit of extra money that you’re able to save can be used to make additional payments on your debts. The more money you can put towards your debts each month, the faster you’ll be able to pay them off.
We are not saying that you shouldn’t have any fun – simply prioritize what is more important to you. If you are reading this article, we would guess that becoming debt-free tops that list and so perhaps you may be willing to give up Netflix (for example) to get out of debt sooner!
List of expenses that can be easily cut or reduced
- Eating out
- Online Subscription services
- Cable TV
- Gym memberships
- Shopping for unnecessary items
- Reduced internet plan
- Reduced cell phone plan
Sell unused belongings for extra cash
Want to kickstart your debt repayment journey? One way to free up some extra money each month is to sell any unused or unwanted belongings.
Take a look around your home and see if there are any items that you no longer need or use. You may be surprised at how much money you can make by selling off some of your unwanted belongings.
Not only will this give you some extra cash to put towards your monthly payments, but it will also help to declutter your home. And who doesn’t want that?
PS – We know this one sounds extreme, but it’s amazing the amount of stuff that sits around most households not getting used.
Negotiate lower interest rates with your creditors
This tip isn’t something we would recommend if this is the only thing that would save an individual. Because otherwise, there is usually a bigger problem at play. However, for someone who is making decent headway otherwise, negotiating with your creditors to lower your interest rates & reducing your minimum payments can be a great way to speed things up. The lower your interest rates and payments are, the more money gets applied directly to the principle.
This can be a difficult process especially if you have multiple debts, but it’s worth it if you’re able to get a lower interest rate. To increase your chances of success, make sure to do your research before negotiating with your creditors. You should have a good idea of what kind of interest rates are reasonable before you start the process.
Take advantage of balance transfer offers
If you have credit card balances, you may be able to take advantage of balance transfer offers. Many credit cards offer 0% interest on balance transfers for a certain period of time. This can be a great way to save money on interest and pay off your debt quicker.
Just be sure to read the fine print before you sign up for a balance transfer offer. Some offers come with fees or other penalties that could end up costing you more in the long run.
The way a balance transfer offer works is by reducing your effective interest rate for a certain period of time. For example, if you had $10,000 in credit card debt @ 19.99% interest, you would pay $1,999 a year in interest charges. If you were able to find a balance transfer offer (with an adequate credit limit) that charged a 2% flat fee (or $200) you would be able to apply the difference of $1,799 to the $10,000 balance.
Warning – This can be a double-edged sword. We do not recommend this option unless you have a clear trajectory to pay off your debt and have a fully-funded emergency fund.
Use the debt snowball method to accelerate debt payoff
The debt snowball method is a debt payoff strategy that involves paying off your debts in order of smallest to largest. Once you’ve paid off your smallest debt, you’ll have extra money to put towards your next debt on the list. This method can help to keep you motivated as you see your debts gradually disappearing.
To use the debt snowball method, make a list of all of your debts from smallest to largest. Then, focus on making the minimum payments on all of your debts except for the smallest one. Put as much money as you can towards paying off the smallest debt until it’s gone. Then, move on to the next debt on the list and repeat the process.
While the snowball method may not be the most efficient way to pay off your debts, it can be a great way to stay motivated and see progress being made. In fact, studies have shown it to be more successful than the debt-avalanche method (paying highest interest to lowest interest) as people are more apt to stick to the plan.
Refinance your debt
Refinancing your debt can be a great way to save money on interest and pay off your debt depending on your credit history. When you refinance, you’ll take out a new personal loan or line of credit with a lower interest rate and use the money to pay off your existing debts. This can help you to save money on interest and become debt-free more quickly.
Just be sure to do your research before refinancing your debt. While taking out a personal to pay off debt can make sense, it is a double-edged sword. Make sure that you understand the terms of the new debt consolidation loan and that it is right for you. Sometimes, people end up paying more in the long run by refinancing their debt because they believe a single payment is better than multiple payments despite the fact their new loan may have a higher interest rate.
Enroll in a Debt Consolidation Program
If you’re struggling to keep up with multiple debt payments, you may want to consider enrolling in a debt consolidation program. These types of programs can help you to consolidate your debts into one monthly payment with reduced interest. Most unsecured debts can be included in a debt consolidation program. This includes, but is not limited to lines of credit, personal loans, credit cards, payday loans, and income tax debt. Typically, if you are wondering how to pay off big debt with little income, this is the route you want to explore.
A consumer proposal is a legal debt relief program that allows you to make an offer to your creditors to settle your unsecured debts for less than what you owe. If your offer is accepted by the majority of your creditors, it will become legally binding and you’ll be required to make payments according to the terms of the proposal. Debt settlement through a consumer proposal can be a very effective way to cut your debt depending on your circumstances.
Beware – There are many debt settlement companies that claim to offer debt relief programs that simply refer you off to a Licensed Insolvency Trustee after charging you a fee. Only a Licensed Insolvency Trustee firm can file a consumer proposal.
Bankruptcy is a legal process that allows you to eliminate most unsecured debts. Once you’ve filed for bankruptcy, you will make payments based on your household situation, your family income, and your assets.
Both of these options have their pros and cons, so it’s important to speak with a professional before making a decision.
BONUS – Use cash & avoid credit card debt
One of the best ways to avoid a large credit card balance is to simply not use your credit cards. If you only use cash or debit for your purchases, you’ll never have to worry about paying interest on a credit card balance. Knowing how to manage money and pay off debt is difficult but switching to a cash-mostly budget will make it much easier.
While this may not be possible for everyone, it’s a great way to avoid debt if you can swing it.
Conclusion – Being Debt Free Is Possible
This article has provided you with 10 easy ways to pay off debt quicker. If paying off your debts is a top priority, and you are looking for the fastest way to pay off debt then it’s important that you read these steps and strategies to help accelerate the process. It can be challenging to keep up with multiple payments while trying to live life, but there are many options available for people in this situation.
Take some time today and explore which of these methods would work best for your situation before starting on any new commitments or purchases. With careful planning and smart decision-making, you’ll have more money put towards paying down your debt than ever before!
Common Questions About Paying Off Debts
Is it smart to pay off old debt?
There’s no one-size-fits-all answer to this question, as the smartest decision depends on your individual financial situation. However, there are some general guidelines you can follow to help you make the best decision for yourself.
If you have high-interest debt, it may be worthwhile to pay it off as quickly as possible to save on interest costs. Ultimately, the best approach is the one that works for your specific financial goals and situation.
What type of debt should be paid off first?
Some experts recommend paying off the debt with the highest interest rate first since that will save you the most money in the long run. Others suggest paying off the smallest debt first so that you can get it out of the way and feel good about yourself.
Either way, it’s important to make a plan and stick to it. Create a budget and a timeline for yourself, and be sure to update both regularly. That way, you’ll always know where you stand and can adjust your plan accordingly.
How do I get out of debt if I don’t have enough money?
If you’re in debt and don’t have limited cash flow we strongly recommend speaking directly with a professional. They will review your situation and determine the best course of action. While uncommon, there are instances where income is too low to properly pay back debt.
Is there such a thing as easy debt relief for Canadians?
This largely depends on the unique circumstances of your situation. Some situations are certainly less complex than others. However, a full assessment of an individual’s finances is required prior to properly providing advice.
This article was written by Angela Rodgers, CIRP, LIT. She is a Licensed Insolvency Trustee and the President of Powell Associates Ltd. She has worked in the insolvency industry for over 20 years. No matter if you are looking at filing bankruptcy, a consumer proposal, or simply looking for debt management advice, Angela can help.