Athletes from around the world have been going for gold at the 2021 Tokyo Olympics after months of preparation, strategizing and discipline. This same approach can be taken toward the goal of paying down debt, especially revolving debt.
Unlike instalment debts such as your mortgage and car payments, revolving credit (e.g. credit cards, lines of credit), do not have fixed repayment terms. Your balance on revolving credit can go up or down depending on your spending habits, the amount and frequency of your payments and interest rate charges.
Just like mastering an Olympic sport, there are strategies and tactics that can be used to efficiently pay down your debt. Here are few strategies to get you started:
Strategy #1: Take an aggressive mindset when planning your debt payments.
Think “the higher the better” or “the more the merrier” when it comes to making debt payments. This means aiming to pay more than your minimum payments to tackle the principal portion of the debt, not just the interest. If you owe $5,000 on your credit card and the minimum 3% payment is $150, just adding an extra $100 or doubling your minimum payment to $300 will make a huge difference in the time it takes to pay off your balance — as long as you don’t add more purchases to the card.
Strategy #2: Practice discipline.
Just like how athletes must stay disciplined and not get distracted when training, it’s important to stay disciplined when paying off debt. A common distraction that can derail your efforts to tackle your debt is the return of old habits like overspending or impulsive spending. You can stay disciplined by always having your budget available whether that’s making it accessible on your phone or viewing it on a piece of paper posted on your wall.
You should also be mindful of what triggers you to spend. If you’re an emotional spender and you’ve had a stressful day, try to be proactive with your emotional response by not heading to the shopping centre. Instead, try walking your dog or spend time with a friend or family member.
Checking in with yourself and how you spend online is also a good idea. Learning which websites or apps have caused you to spend impulsively in the past or filtering your promotional emails out of your main inbox can be helpful ways to avoid temptation and overspending online.
Strategy #3: Build a strong team.
Having a strong support system is crucial when paying down debt. Enlisting a partner, spouse, or friend who is understanding of your financial situation will be a huge advantage in your journey to debt freedom. As someone who can provide emotional support, they can cheer you on through the tough spots and help celebrate your successes.
When it comes to developing a debt defeating strategy, Licensed Insolvency Trustees can be a great addition to your team. We offer free, confidential consultations in which we walk you through each debt solution available and help you move forward with the best option given your personal and financial circumstances. The goal is to ensure you are making an informed decision and are well prepared for each process.
Strategy #4: Reduce your interest rate with a transfer balance credit card.
If you’re unhappy with your interest rates, you can reduce interest costs by consolidating your debts under one lower interest rate loan or by taking advantage of credit cards that offer low-interest balance transfers.
Transfer balance credit cards are credit cards that promote a 0% or low-interest rate for a temporary period. They’re a good option for consumers who wish to take advantage of the lower interest rate (or 0%) by transferring the balances owed on existing debt to the new credit card. Existing creditors are paid out using the credit and the consumer is left to pay down the debt on the new credit card at a much lower cost. The lower interest rate period typically runs 6 to 10 months, so you need to be laser-focused on paying the debt down during this period.
If you fail to pay off your debt during the lower interest period, the interest rate will increase, and charges will be reinstated. To prevent this, I recommend trying to avoid using the credit available on the card during the low-interest period, as it will add to your debt level and make it more difficult to pay down.
Strategy #5: Explore formal options like consolidating your debt with a consumer proposal.
If you don’t have the cash available to pay more than your minimum debt payments or to aggressively pay down your debt in 6 to 12 months, a consumer proposal may be a great option.
A consumer proposal is a formal program administered by a Licensed Insolvency Trustee that allows you to pay back a portion or percentage of the total you owe. It is usually paid with fixed monthly payments over a maximum of 5 years. The balance of the debt that isn’t paid is written off by your creditors if they are in agreement with the proposed terms.
Just like preparing for an Olympic sport, paying off debt takes hard work and determination. Remember to be patient with yourself when adjusting to cost-cutting lifestyle changes and forming new habits. If you start to feel defeated by your debt, try to stay positive and utilize the support system around you. Before you know it, you’ll be on the last leg of the race and a spot on the debt-free podium will be waiting for you.
For more information on the topics discussed in this blog, call Grant Thornton Limited toll-free at 1-844-4GT-DEBT or book a free consultation.