By Julie Jaggernath
Have you hit a brick wall trying to find the best or fast way of how to pay off debt quickly? Rather than getting more and more frustrated, take bold steps that will get you moving towards your goal again. It’s like riding a bike – to keep your balance, just peddle forwards. But while we go for bike rides with friends or family, we don’t typically ask them to join us as we figure out how to budget and pay off debt. That’s where taking bold steps comes in; curious what that might mean?
It’s much easier to stay motivated when you’re in it with other people. Take the bold step of asking a few friends if they’d commit to paying down debt and bills with you. Even make a friendly wager with each other to see who can pay off the first 25% of their debt the fastest. Bragging rights go to the winner, of course!
When it comes to paying down debt, whether or not you ask friends, family or colleagues to come along for the ride, here are tips and things to keep in mind to help you achieve your goals as fast as possible:
Budgeting to Pay Off Debt
Budgeting to pay off debt ensures that you don’t pay down some debts, like your credit cards, but incur other debt somewhere else. There are many ways to pay off debt, so a realistic household budget that accounts for all of your bills and payments means that you won’t neglect some in favour of others.
When it comes to establishing a realistic budget, try using an interactive budgeting spreadsheet to help you juggle the numbers until they balance, or if you prefer a more step-by-step approach, try our 7 Steps to a Budget That Works.
Paying Off Debt Quickly with Accelerated Payments
When it comes to paying off debt quickly, many people don’t think to accelerate their payments the same way you would accelerate mortgage payments. Making payments to credit cards each time you get paid, topping up loan payments, or dropping lump sum payments onto your line of credit or overdraft, helps to pay down debt faster. Check with your lender to see if extra payments are allowed (they usually are) and to confirm the best way of making them. Making higher payments means you pay less interest and the cash doesn’t sit around tempting you to spend it elsewhere.
Don’t Get Carried Away - Ensure That You Have Savings for Emergencies
Nothing eats into your debt reduction progress faster than an emergency expense. As you create your budget, factor in savings for unexpected expenses so that you have money on hand to pay for at least part of what you need. When it comes to how to pay down debt, savings is like having an emergency flat repair kit along on a bike ride.
Keep Your Credit Cards Safe from Yourself
Credit cards make temptation spending way too easy, so if you’re looking for how to pay off your credit card debt specifically, you need to stop using them. Avoid carrying your cards with you and store them in a safe place. If your card is joint with someone, store their card with yours. Also remove the card number from any shopping apps on your phone or computer. The idea is to make it hard for yourself to use your card, and to only use it for planned purchases that you know you can afford.
Find Extra Money
Whenever you receive a little extra money put it towards your debts and bills. It might come from a bonus at work, a commission cheque, an income tax refund, or you may receive gifted funds for your birthday, for instance. More ways to find extra money include working an extra shift or some overtime, selling something online, consigning clothes or sports equipment, or selling something you make or do as a hobby, e.g. photography, handiwork items or music lessons. Even an extra $50 a month pays your debt off that much faster.
Ask for a Lower Interest Rate – No Letter Required
Some people think that they must write a letter to request a monthly payment reduction, or lower fees and interest. No such letter exists. It’s actually best to phone your credit card company or lender to see if you can get your interest rate reduced. For a loan they may ask you to come in and renegotiate your existing loan. For a credit card, they may offer you a balance transfer to a new credit card. Consider your options carefully, or come speak with one of our non-profit Credit Counsellors if you have questions you need answered.
Both of these solutions mean applying for new credit and while you might pay less interest, you may also lower your credit rating. Weigh the pros and cons; if you don’t plan to apply for credit in the next year or two, a balance transfer offer or refinanced loan will likely benefit you. Furthermore, for a low/no interest credit card offer, understand the terms and conditions. Know when the promotional period ends and plan how best to utilize the offer to your advantage.
Cut or Reduce Your Expenses Temporarily
You’ve scrimped and saved and cut expenses, but you still have a ways to go before your debt is all paid off. That’s when it can feel like you’ve hit a brick wall – and it’s the perfect time to rely on your support team for the motivation you need to keep working towards your goal. If you haven’t tracked your spending for a while, tracking it again now might show you new ways to save.
Try frugality on for size by looking for expenses to cut temporarily, rather than permanently. Quick frugal fixes include nixing memberships, subscriptions, and packages or bundles where you don’t need all of the services. Contact utility and cell phone companies to see if your services are available for a better price, or if you can scale down to a more basic package for the time being. Review all of your household expenses with an eye to reduce them by at least 10 percent.
How to Pay Debt by Consolidating
When it comes to how to pay debt off by consolidating, you can either consolidate what you owe (like into a new loan) or you can consolidate payments (like with a debt repayment program). Depending on your situation, a debt consolidation loan can actually leave you deeper in debt than when you took out the loan. To make a consolidation loan work effectively, you must use a budget to guide your spending. Those who don’t, often end up doubling their debt rather than paying it off. Consolidation loans have their advantages, so speak with your banker to find out if you qualify for a one at a good interest rate, and if it’s right for you.
A debt repayment program consolidates your payments, rather than what you owe, and is a program available through the Credit Counselling Society. One of our Counsellors can explain the process to you and help you decide if it’s an option your budget can accommodate.
The Best Ways to Pay Off Debt Quickly and Effectively
Some of the best and most effective ways to pay off debt quickly are the snowball and avalanche methods. Both single out debts for special treatment, which helps pay off what you owe faster. But keep in mind - it took time to get into debt; it often takes longer to get out of debt again. Asking friends or family to help keep you motivated and accountable is a great way to stay on track. The months and years will pass whether you’re in debt or not – so make the time count and work towards enjoying the peace that comes from being debt free.