Strategies to Help You Pay Down Debt
Written by Kelley Keehn

Friday, October 7th, 2022

Frustrated with your high-interest-rate debt? Seeing the interest paid on your credit card and loans, and thinking how wonderful it would be to pay yourself instead of your lender?

You're not alone

According to the 2019 Canadian Financial Capability Survey, roughly 73% of Canadians have some type of outstanding debt or have used a payday loan.

“There's so many factors why people are struggling with debt," says Bruce Sellery, CEO with Credit Canada. “Sure, there are some that are overspending. But the majority of people we deal with at Credit Canada have at least one other factor contributing to the issue: job loss, divorce, mental or physical health issue, undiagnosed issues like ADHD, etc."

And Canadian are starting to spend again.

“As the economy has reopened, Canadians have gradually increased their spending," says Doug Hoyes, author and insolvency trustee with Hoyes, Michalos & Associates Inc. “Some of this spending is on credit, so debt levels are once again increasing."

Strategies for reducing your debt

Hoyes admits the solution is different for everyone, but the starting point is to "take inventory" of your budget. Look at ways to lower your expenses or consider taking on a part-time job or side gig.

Doug suggests looking at expenses and seeing if you can cut back in strategic ways, such as grocery shopping on the way home from work, using public transport, or even carpooling. And consider shopping at grocery stores more frequently to reduce food waste, he says.

Sellery is a big fan of the sustainable spending model: A. B. C.

A: Analyze what's coming in and going out.

B: Brainstorm all the ways in which you could increase income or cut spending -- get creative.

C: Commit to changing two to three big things, like getting a second job, and stopping online shopping for three months. "That will likely make more difference than counting lattes".

Here are some other tips to consider:

  • Do you have access to a lower rate line of credit to transfer or pay off higher interest rate debt (such as credit cards, car loans, etc.)? You may want to consider whether this option suits your needs.
  • Consider the avalanche vs. snowball strategies. Does it make sense for you to pay off your smallest bills first to build confidence and check them off your to do list? Or, tackle the ones with the highest interest rate?

Run the numbers

One way to get excited about paying down debt quicker is to see how just a few dollars a day or month can make a difference in slashing the amount of time needed to pay it off. The interest you can save can then be used to invest or put in your savings. Try these calculators for your own situation.

For example, if you had a $5,000 balance on your credit card with a 20% interest rate and only made the minimum payment, it would take you approximately four years (assuming no new purchases) to pay off your debt, and, you'd pay a whopping $2,359.09 in interest.

So, what would just $2 more per day (in addition to your minimum payment) do to fast track burning your debt? With just $60 more per month, you'd pay off your credit card balance one year and seven months sooner and you'd save $935.82 in interest!

Remember, there's help

Hoyes and Sellery both want you to know that if your debt seems overwhelming, there just isn't enough money at the end of the month for your bills, or you're starting to miss payments, then you should reach out for support.

For example, you may want to consult a debt counsellor recommended by your bank.

"Even if you aren't late, you'll be able to learn more about your options," said Sellery. "It isn't the right plan for everyone, but it can make a big difference."

Hoyes finds himself talking to a lot of individuals about the benefits of a consumer proposal. “If you're having trouble making your minimum payments, or you are falling behind, you should be aware that you're at risk of having your wages garnisheed. If you think you need help, you do." If you're really in trouble, he suggests reaching out to a licensed insolvency trustee, especially as initial consultations, by law, are free.

However, if you're experiencing financial hardship it's best to reach out to your bank first to see if you can come up with a solution, since insolvency does have a negative impact on your credit and should only be used as a last resort.


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