Many Canadians from coast to coast struggle with paying down debt. They would like nothing more than to pay down debt fast as possible as the headache that debt brings can take a toll on your health. We know that dealing with the high interest rates while making only the monthly minimum payments can seem overwhelming.
According to Statistics Canada, for every $1 earned, we owe $1.75 in debt. Debt has always been known as a cash flow killer and can have a negative impact on a person’s well-being. It can affect your credit score thus preventing you from obtaining a credit card, a car loan or even obtaining a mortgage. Below, you will find steps you can take to minimize your debt and increase your cash flow.
Pay Down Debt Fast by Listing Your Debts
One of the first step of managing debt is being aware of it. It’s important to know which creditors your indebted to and by how much. Make sure that you find out the due dates and the interest rate on the outstanding debt. A possible example is shown below.
| Debt | Amount | Interest | Due Date |
| Visa | $2,100 | 19.99% | End of Each Month |
| Student Loan | $5,400 | 5.00% | End of Each Month |
| Car Loan | $20,000 | 1% | End of Each Month |
If you’re not sure about your debts, you can request a copy of your credit report which would list past and current credit obligations. The bottom line is that knowing what you owe and who you owe it to will help you get out of debt quicker.
Pay Down Debt Fast by Getting Rid of High Interest Debt First
A crucial step to any financial plan is to pay down the high interest debt such as credit card balances, payday loans, title loans, rent to own payments. Interest rates on these debt obligations can be as high as 20%. It’s very rare to earn 20% a year on your investment unless you’re comfortable with speculative risk and the possibility of total loss of your principal. With this approach, you would make the minimum payments on all of the debts that you’ve listed and depending on your cash flow, make an extra payment on the debt with the highest interest rate.
| Debt | Amount | Interest | Credit Limit |
| Visa | $4,100 | 21.99% | $10,000 |
| Visa | $2,100 | 19.99% | $5,000 |
| Student Loan | $5,400 | 5.00% | None |
| Mortgage | $200,000 | 3% | None |
| Car Loan | $20,000 | 1% | None |
Over time, using this approach will mathematically lead to the lowest overall total payments.
Pay Down Debt Fast by Consolidating
Debt consolidation is a popular strategy to paying down debt quicker. It’s a strategy where you would combine all your current debts, preferably two or more, into one monthly payment. Debt consolidation is a popular strategy as it can simplify your finances and increase your monthly cash flow as consolidation of debt would happen a lower interest rate than what you would be paying now. Typical strategies would involve taking advantage of:
- Credit Card Balance Transfers
- Certain credit cards allow you to combine the balances of multiple cars into one at a lower interest rate. There may be a one-time fee in doing so.
- Debt Consolidation Loans
- You may apply for a debt consolidation loan at your local bank. Upon approval, the bank would combine all your debts into one at a lower interest rate than what you would be paying now. This type of strategy makes sense of people who have many credit cards with one bank.
- Debt Consolidation Programs
- Through a debt consolidation program, your creditors would work together with a credit counselling agency and negotiate to roll all your debts into one monthly payment. This is a great way to pay down debt fast!
- Home Equity Loans
- Home Equity Loans are popular if you own your own home. You may use the home as a collateral to obtain a loan at a lower interest rate than what you’re paying now.
- Lines of Credit
- One of the most common strategies is to obtain a line of credit. A line of credit can be secured or unsecured and is offered at a lower rate than what you may be paying now on your credit card. A lower rate would help you pay down debt faster than a higher one. Upon approval, it’s recommended that you roll your debts into the line of credit in order to have one monthly payment.
Pay Down Debt Fast by Automating Your Payments
Knowing when your payments are due is important. A great way to stay on top of your debts is to know when they’re due. The easiest way to manage this is to set up automated monthly payments through your online banking platform. Missing payments on credit cards is critical and can affect your credit score. Automating your payment is highly recommended if you live a busy life or have multiple credit cards or loans.
Pay Down Debt Fast by Cancelling Your Credit Cards
Cutting credit out of your life can help you live stress free while encouraging you to stay within your means. For individuals that have more than one credit card, you may be thinking of cancelling one or two in order to avoid accumulating more debt. It’s recommended that you have at least one credit card in order to build a credit score but always make sure to pay the credit card at the end of each month.
Above we’ve listed common tips and hints on how to pay down debt fast. The easy part is getting into debt and the hard part is getting out of it. However, with strong discipline and minor lifestyle changes, it can be done.
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