Trying to pay down debt? Even with a plan in place to reduce your troublesome debt load, it’s hard. You may feel like you are not getting anywhere. Before you throw in your debt towel, it’s worth taking a look at your debt repayment strategy.
“One of the keys to paying down debt is to be open to re-tooling your plan when you find that it’s not working. Debt repayment can take several months, if not years, so it is important not to get discouraged and give up,” says Jeff Schwartz, executive director, Consolidated Credit Canada.
Schwartz continues, “There are lots of ways to go about paying down debt. By the same token, there are lots of practices and habits that can effectively derail or delay your debt repayment plans- and you may not realize it.”
Best Approach to Paying Off Debt
Don’t Overlook Saving
If your goal is to pay down debt, then you’ve probably put every dollar you earn toward that debt right? Not necessarily. While an aggressive plan is good- don’t completely ignore your savings in favour of debt repayment. Even if it is a small amount every month, it is essential you build up an emergency savings fund.
Without an emergency savings account and an unexpected expense occurs, you run the risk of taking on more debt to cover that expense. This could not only derail your debt repayment but leave you even further behind, so continue to save
Don’t Cut Off Cash Flow
When you are trying to pay down debt, the inclination is to put every single penny you can every month toward the bills. If you don’t leave enough cash flow to cover other monthly expenses, you will rack up additional debt by using credit cards. The cycle will just repeat and continue.
The answer here is to set up a detailed budget. One that covers all of your expenses and leaves room in your cash flow. Yes, you need to make sacrifices if you are trying to pay down debt, but you need to be realistic. The key is creating a habit that lets you spend within your means. Use a budget.
Don’t Pay The Bare Minimum
If you’ve got multiple debts, you may be tempted to put what you can on them all, which may result in payments that only slightly overreach the minimum, which is not effective in reducing the overall debt.
Credit cards will never be paid off by making minimum payments. Most payments go to servicing the swelling interest charges. Pick your highest interest-bearing card, and pay as much as you can towards that one first, while making minimums on the others. This will allow you to pay off your most expensive debt first so you have more for the rest.
You may even try to consolidate your debts on your own-this is a particularly good strategy if you have great credit.
Are you in the grips of a debt cycle that you can’t find your way out of? It’s time to change your path so that you can change the outcome. We can help you with that. Contact one of our trained credit counsellors at (855) 216-5095 or visit our free online debt analysis.