You might think you’re out of luck once your debt snowballs into something unmanageable. However, depending on your situation, several debt relief strategies can help you gain control of your finances and reduce how much you owe. Knowing where to start and what options are available can be difficult. To help, we’ve pulled together five of our best strategies that can get you out of debt and back to being you:
Strategy #1: Reduce your balance by increasing your minimum payment
Think “the higher, the better” or, “the more, the merrier” when making debt payments on your credit card or line of credit. Using this mindset, you’ll aim to pay more than your minimum payment on your credit by making space in your budget to aggressively pay down debt.
Only making minimum debt payments will make it nearly impossible to pay off your balance. Why? Because most of your minimum payment only tackles the interest charges, leaving little remaining to reduce the principal portion of the debt. If you owe $5,000 on your credit card with a 3% minimum payment of $150, adding an extra $100 or doubling your payment to $300 will reduce the time it takes to pay off your balance. In short, any amount beyond your minimum payment will help – the trick is to be consistent and avoid adding to the card’s balance.
Strategy #2: Adopt a new mindset to curb overspending
No matter how efficient your budget is or how consistently you make debt payments, unplanned or impulsive spending can quickly derail your progress. That’s why it’s important to know your spending type and be mindful of what triggers you to spend. If you’re an avid online shopper, avoid temptation by removing shopping apps and unsubscribing from promotional emails. Or, if you’re an emotional spender and you’ve had a stressful day, try to be proactive with your emotional response. Avoid the mall, online stores, and seek out another activity that brings you joy, like walking your dog or spending time with a friend. Building a habit can be mindless; breaking one is the tricky part – check out our full blog with 7 simple tips to stop overspending.
Strategy #3: Adopt an ‘essentials-only’ spending plan
Paying off debt while piling new purchases onto your existing balance is very challenging. Adopting an essentials-only budget is one way to trim your spending and increase your savings or debt repayment. Essential expenses are needs, such as housing costs, utilities, and groceries, whereas non-essential expenses are wants, such as home décor, subscription services, and takeout.
Creating a budget that prioritizes essential expenses will help ensure those bills get paid first while freeing up extra money to pay down your debt. An essentials-only budget isn’t forever, but making these cuts in the short term can help you cut back and put money toward achieving your financial goals.
Strategy #4: Build a strong team
Having a strong support system is crucial when paying down debt. Try enlisting a partner, family member, or friend who understands your financial situation. Having someone who can provide emotional support and motivation throughout your journey to debt freedom can be a huge advantage.
A Licensed Insolvency Trustee (LIT) can be a great addition to your team when developing your debt-defeating strategy. At Grant Thornton, our debt professionals are here to help create personalized debt solutions that meet your financial goals and set you on the road to debt freedom.
Strategy #5: Explore formal options like consolidating your debt with a consumer proposal
f you don’t have the cash available to aggressively pay down your debt over the next six to 12 months, a consumer proposal may be the right option for you.
A consumer proposal is a formal debt relief program administered by a Licensed Insolvency Trustee. This process allows you to consolidate your unsecured debt and only pay back a portion of the total amount you owe through fixed monthly payments over a maximum period of 5 years. Once completed, unpaid balances are written off by your creditors if they’ve agreed to the proposed terms.
Paying off debt takes hard work and discipline. Remember to be patient when adjusting to cost-cutting lifestyle changes and forming new habits. If you find yourself in a situation where you’re struggling to pay back your debt, we’re here to help. For more information on the topics discussed in this blog, call 1-844-4GT-DEBT or book a free consultation.