Create a Monthly Spending Plan To learn how to get out of debt and to stop borrowing from your credit cards again and again, you will need to create a monthly spending plan for your money. Not only will this ensure you are living within your means and not above your income, which is where credit card debt comes from , but it will also give you a set timeline on when you can expect to get debt free.
Want some help creating a plan? This will help you stay within your budget and maximize your ability to pay down your debts. We also have lots of other budgeting resources if you prefer other ways of budgeting. After paying debts that are on fixed monthly payments mortgages, vehicle, and term loans , make the minimum payments required on your credit cards with the lowest interest rates and maximize your payments on the credit cards with the highest interest rates.
Once a debt is paid, use this extra money to pay down the credit card with next highest interest rate. This will save you money and help you pay down all of your debts faster.
This can have a powerful psychological effect on many people because it can feel like they are making progress sooner. This can be very encouraging and provides a lot of people with motivation to keep paying down their debt.
Here's how it works: Use any extra money you can come up with to pay off your credit card with the smallest balance first ignore the interest rates and just focus on the card with the smallest balance. Paying off this card will give you a quick win and a sense of satisfaction and accomplishment.
Don't pocket the minimum monthly payment that you used to pay every month on your smallest credit card. Instead, start paying down your next smallest credit card balance with that money. Of course, throw all the extra money you can at this debt to get it paid off as quickly as possible, but the key here is to free up money as you pay off your smallest credit card balances first.
The monthly payments you free up will help you pay down the next larger credit card even faster. By doing this, you're essentially creating a snowball effect.
Repeat the process of focusing on paying off your next smallest credit card balance using the money freed up from the smaller cards you paid off earlier. With the snowballing monthly payment this method creates, your debts will get paid down faster and faster as you go, and you'll get more and more motivated as you pay off one card after another.
Some people like to debate which debt payoff methods is best. While paying off the highest interest rates first is mathematically correct, the best method is whichever one works for you.
Some people are motivated by numbers and some are motivated by feeling that they accomplished something and seeing that they are actually making progress. Go with the method that you think will work best for the way you tick.
Once you've paid off a card, cut it up, and cancel the account. Most people only need one or two credit cards. Use Savings to Pay Debt Down Faster Many people regularly contribute to a savings plan, which is great, but consider that this is money that could help you pay down what you owe faster.
Once you have established an emergency fund and are saving for irregular expenses, you may want to consider suspending extra payments to Canada Savings Bonds or other savings accounts until you have paid off what you owe. The money you save by paying down your debts faster will be substantially higher than the interest you will earn in a savings account. Also consider using income tax refunds, pay increases, or other unexpected funds to pay down your debts.
For even more ideas of where you can find money to help pay down your debt, have look here the ideas are about all the places you can find money to save. You're just going to use the money to pay down debt instead. Consider consolidating your debts with a consolidation loan or transferring your credit card balances to a low rate credit card.
Carefully investigate the terms, conditions, any hidden fees as well as the overall interest savings you may realize before you commit to this solution. Cut up and cancel your credit cards if you choose this option, otherwise you may be tempted to continue using them and further increase your debt load. We believe the reason for this is that when people obtain debt consolidation loans, they don't change their behaviours that created the debt in the first place.
To get ahead using a debt consolidation loan, make sure you track your spending for at least 2 weeks , create a budget , follow it, and make sure you're not spending more than you earn. Otherwise you'll end up like so many others and need another debt consolidation loan once you finish paying off your first one. Refinance Your Mortgage If you own your own home, you may have enough equity to consolidate all of your debts into your mortgage.
Make sure you consider all of your options and seek advice from someone other than your lender since they have a vested interest in getting you to choose this option. Just like with a debt consolidation loan, when you consolidate debts into your mortgage, you also need to create a budget that allocates money to savings. Repeatedly using your home as an ATM can set you up to face retirement with a lot of debt, no assets, and no savings.
If normal banks and credit unions aren't able to help you with refinancing your mortgage, don't immediately turn to a home equity lender. Instead, speak with one of our Credit Counsellors.
They'll help you explore all your options and help you put together an effective plan to pay off all your credit card debt. Their may even be options available to you that don't involve using the equity in your home. Contact the Credit Counselling Society for Personalized Tips on Paying Off Credit Card Debt If you are overwhelmed by your current financial circumstances or have difficulty maintaining a monthly budget, we can help you by providing personalized tips for paying off credit card debt.
There are even debt relief and debt repayment programs that may be a possibility depending on your situation. Contact us so we can help with confidential, non-judgmental, and objective advice, guidance, and information. Related Topics Here is another resource you can use to learn how to get out of debt along with a lot more ideas you can use to reduce or eliminate your debt.
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