Admit it. Your debt is stopping you from living the life you want to live. It’s making it harder to save up a down payment for your first home. It’s preventing you from going on exotic vacations. It may even be causing you to miss out on some of your favourite activities.
Whether you have $1,000 worth of credit card debt or $100,000 in student loans, it’s time to get serious about tackling your debt. Once you find your groove, you’ll see how quickly you can reach your goals.
1. Reduce or Eliminate Interest Rates
High-interest rates hold you back. If you’re only paying the minimum amount, a very large portion of your payment is going towards interest and it will be almost impossible to get ahead.
Fortunately, there are options.
Consider a credit card with zero or low rate offers on balance transfers. If you have good credit despite your debt, one of these cards can be a good way to get better interest rates. Even if that’s not possible, credit card companies do sometimes lower interest rates when you simply call and ask them. When you have low interest, more of your payment goes toward the principal balance.
2. Join the ODP
The Orderly Payment of Debts Program is a government program aimed at helping people get out of debt while avoiding bankruptcy. You consolidate all of the money you owe with a 5% interest rate and make fixed payments on the loan.
With this program, your credit score won’t take as big a hit as it would through other types of debt consolidation – where consolidators negotiate with lenders to settle your debt for a smaller amount. The biggest downside is that you can’t apply for new credit, like a mortgage or new car, during the time you’re repaying the loan. Still, it’s a good program for those who need it.
3. Get Real About Your Finances
You probably already know budgeting is an essential step toward getting on track with your finances. Although it can be hard to stay on target, it’s important to have a good sense of where you stand. Take the time to track your spending. If you’re like most people, you constantly spend small amounts of money on little things.
Looking at how much you spend each month on things like bottled water or eating out can be really eye-opening. Having a deeper understanding of how you’re spending money helps you find areas where you can cut back.
4. Earn More Money
If you really want to get serious about getting out of debt, you probably need to earn more money. People do this a variety of ways. You could get a part-time job, then apply the extra money. You could also start a side gig consulting or providing a service like dog walking or babysitting.
If you don’t have time to take on this kind of work, you could try making money by selling things you don’t use anymore. You’ll be surprised by the amount of money you have hiding in your closets.
5. Find a Method that Works for You
There are many different ways to pay off debt. Look for a method you find inspiring. For instance, some people don’t mind cutting back on everything — eating cheap (but healthy) or moving in with their parents for a few months while they focus on aggressively paying off debt. Others feel that this is too restrictive and prefer to maintain some of their current lifestyle habits while still dedicating a portion of their monthly earnings to debt.
Some people like to tackle the smallest debt first so they can get rid of it and feed off that motivation, while others like to tackle the debt with the highest interest rate because that makes the most sense. There’s no wrong way to pay off your debt as long as you’re trying.
6. Keep Your Eyes on the Prize
Paying off debt can take a long time, and it’s easy to feel discouraged. The important thing is to keep up these good behaviours. It’s only when you’ve finally paid everything off that you can truly start to live the life you want to live. Keep your focus, and don’t be distracted by shiny things.
When you pay off your debt, you put yourself in a better position to buy a home. You’ll have a better credit score and more disposable income to spend on a mortgage payment. Those two things alone make getting rid of your debt worth the effort.