Carrying high-interest debt affects not only your financial stability, it can come with emotional effects like fear, anxiety, resentment, anger, frustration, depression and sleeplessness.
According to a recent poll, about 34% of Canadians feel overwhelmed by their debt load. In that same poll, those carrying high-interest debt don't seem to be taking much action to get out of debt, despite feeling stressed by it.
Debt Denial: I've Been There
As someone who's been there, I can tell you debt denial does little to relieve one's debt situation or the stress of having debt. Denial can lead to further financial problems—temporary stress relief through “retail therapy" (putting you further in the red), damage to your credit rating or even bankruptcy.
As hard as it can be to see a bright light at the end of the debt tunnel, the surest cure for debt pain is debt reduction. Here are 6 tips to help you pay off your debts.
1. Know What You Owe
Many folks with debt don't even know the exact debt amount, or have only a vague idea. I was one of them, until the day I sat down and calculated every single cent I owed from every single creditor. It wasn't pretty, but knowing exactly what I owed was a crucial first step in moving me from denial to acceptance to taking concrete actions that eventually got me out of debt.
2. Avoid Taking on More Debt
Life happens and sometimes debt is unavoidable—a family crisis, marriage breakdown, student loans. But a lot of consumer debt can be avoided. If you already have high-interest debt of any kind, resolve to not purchase non-essential items or services until you're well on your way to getting back in the black. Debt begets more debt through interest charges, so the more you take on, the more it grows.
3. Track What's Coming In and Going Out
A common cause of debt is spending more than you earn. Sometimes that happens because you don't know how much money is coming in and going out. By tracking your monthly income and expenses, you can see where you're overspending on non-essentials, where you need to cut back and where you could be diverting money to debt repayment.
4. Pay High-Interest Debt First and Consolidate if Possible
If you're carrying debt from many different creditors (credit cards, line of credit, bank loan), aim to pay the debt with the highest interest first. If possible, try to consolidate your debt into one vehicle that charges the lowest interest. Not only will it be easier for you to track your debt, but with the lower interest rate, you'll be able to pay it off faster.
5. Make Extra Payments Anytime You Can
Any time any extra money comes your way, think debt first. Even if you have only $10 to spare this week, put it towards your debt, because each extra payment helps reduce the overall debt that much faster.
6. Celebrate Milestones
Finally, when you reach a major milestone—your five-figure debt is now down to four or you have just another thousand dollars to go—celebrate your success. Perhaps some flowers, a movie or dinner out—just don't go overboard! There's nothing like success and feeling like you've accomplished something to help keep you motivated.
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