Thanks to our Christmas generosity, one of the top New Year Resolutions is to pay off debt! Heck, who wouldn't love to live debt-free? Last year, Canadians surpassed the US when it comes to the average amount of household debt at just over 148%!
So what's the solution? Well, different strategies work for different people, so here's some steps experts recommend for dealing with debt!
Know your numbers. Know what you’re up against: make a list of debts including the outstanding balance, monthly payment, billing date and interest rate. Rank them according to how urgent it is to eliminate them.Tackle “bad debts” first. While it’s necessary to make minimum payments on all debts, experts usually recommend targeting one or two debts for some extra attention — especially those with high interest rates. Once you’ve scratched your #1 debt off the list, pour the extra cash into the next item, and so forth.
Pay more often. This can help you save on interest chargess. Find out if you can arrange two monthly payments instead of one or how you can make extra payments through an automatic transfer.
Create (or tweak) your budget. Not sure where to start? Find tips here http://financialplan.about.com/od/budgetingyourmoney/ht/createbudget.htm plus google 'free household budget template' and get started!
Bring in extra cash. There’s only so much room to cut back the budget, so it’s often necessary to earn some extra cash. There are a variety of ways to do it — like getting a part-time job, turning a hobby into a side business or renting out a spare room. Even selling unwanted stuff can give your payments a boost.
Pay cash. Cash serves as a physical reminder to make us think twice before we spend. If you’d rather not get out the scissors, put your credit cards in your safety deposit box instead.Consider cashing in investments. Not your retirement savings or emergency fund, but the low earning ones, that is — like GICs or money stashed away in saving accounts. Do the math: chances are you’re paying more interest on your debt than you’re earning.
Consolidate… with caution. There’s some controversy surrounding this step, but consolidating your debts to a lower interest plan can cut the amount of interest you’re paying. However, proceed with caution because there are many scams and fraudulent services out there and many people have lost hundreds of dollars for services that didn’t help. Do some background research on the company before signing on through government debt counseling websites.
Work with your creditors. While they’re under no legal obligation to do so, many creditors may work with you to make special arrangements like lowering interest rates or devising a better payment plan. This step may be an option if you don’t have too many creditors and you have a good history of making payments on time.
Attend to your emergency fund. It may seem counterintuitive, but this strategy stems the reliance on credit in a crisis. Setting aside money for emergencies is a good habit to get into rather than accruing more debt. How much is enough? A general rule of thumb is 3 to 6 months worth of expenses (depending on your circumstances), but even $1000 is a good start.
Plan ahead for major expenses. Aside from emergencies, we have some warning for major expenses like a child’s education, wedding, home upgrades or next year’s holiday spending. Instead of making payments after the fact, let interest work in your favour by paying yourself first. Set up automatic transfers to a savings account as soon as you can.
Keep records. True, it won’t help pay down your debt faster — but keep track of your efforts just in case there’s a dispute or error. If you need to seek help from a credit counsellor or consider more serious steps (like a consumer proposal or declaring bankruptcy), you’ll have the documentation you need at hand.
One last word of advice: do what makes sense for you.
Found on Yahoo Finance
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