How to pay off your debts quickly 2023 ?

How to pay off your debts quickly 2023 ?

By Solidarity Fund QFL

Nowadays, as it has become easy to access credit, you may find yourself with debts that put you in a more or less comfortable situation. Finding the right strategy for refunding them, sorting out fees, or managing payments might seem complicated, but it doesn’t have to be. You can achieve this quickly while remaining zen.

Identify all your debts.

The best and first thing to do in establishing your repayment strategy is to ensure you know all your debts. To do this, you will need to make a complete list of the amounts you owe, noting the interest rates (even the 0% ones), the minimum monthly payments, and any other associated charges, such as delay and penalties.

Think about your mortgage, car loan, credit cards (not the ones you no longer use but are still active), unpaid bills, open credit lines, and even the famous plan “Don’t pay anything for one year! “. You will then have a clear picture of your situation and thus avoid forgetting certain debts and having unpleasant surprises.

Optimize your budget

You will then need to determine how much you can use to pay off your debts. A budget will then be your best ally. It will allow you to see the money you earn and, above all, to understand where and how you spend it. You will then see better what the variable expenses over which you have control and which you can reduce or even eliminate to allow you to repay your debts.

Prioritize your debts

The best way to feel progress is to prioritize!

“Good” debt, such as mortgages or student loans, is often associated with low-interest rates and represents an investment for the future, allowing you, for example, to educate yourself to obtain a better job. More paying. Although you will have to pay them back one day, these debts are usually not your most significant burden.

On the other hand, more “sensitive” debts, such as excessive or unnecessary expenses that become unpaid credit card balances or new sofas financed in-store, are the ones that will cost you the most in interest or penalties. These are the ones you need to tackle first.

To help you identify sensitive debts, you can classify them according to their interest rate and size. You will then be able to define your first objectives clearly.

Consolidate and renegotiate your debts

To help you from the start, several options are available to you to reduce your interests and allow you to move forward even more efficiently.

You could consolidate all your debts into one loan with a lower interest rate, for example, by transferring your credit card balances to your home equity line of credit or asking your financial institution to consolidate your debts under a single loan. You’d eliminate the highest interest first and could use the difference to make more significant payments and pay off your debts faster.

Above all, do not hesitate to discuss and negotiate with your creditors to obtain better repayment terms. You could ask to spread the repayment period and reduce your monthly amounts, allowing you to make your payments still and avoid penalties. Indeed, credit companies frequently make agreements with consumers since this allows them to ensure that they will be reimbursed one day. Even large institutions like Hydro-Québec or Revenu Québec do this often. Do not hesitate to ask; you will be surprised at the flexibility they could show!

Customize your repayment strategy

The best repayment approach will keep you motivated from start to finish. So choose one that suits your lifestyle. Three particularly effective strategies are available to you:

01 The snowball method

It will allow you to eliminate your debts one by one, starting with the smallest, giving you a feeling of accomplishment more quickly and motivating you to stay the course. However, the total repayment time will be longer because you will pay more interest.

02 High interest first

This method will allow you to pay as little interest as possible but will not give you a slight motivation boost at the start. You will pay the minimum amount for all your debts but prioritize the debt with the highest interest rate, such as your credit card. So you’ll stop paying interest faster, pay off your debt sooner, and be able to tackle the next debt sooner.

03 A bit of both

You can decide to use both strategies simultaneously. When the interest rates are identical (two credit cards with an interest rate of 19%, for example), prioritize the card with the lowest balance. You will be able to repay it more quickly, savor a moment of pride and continue to repay your debts with even more motivation!

Review your plan regularly.

Remember that you will also have to review your plan regularly because your situation will change. You have to avoid going on the radar and seize the opportunities along the way!

Your mortgage renewal is an excellent opportunity to discuss with your financial institution to request debt consolidation or better loan conditions.

An unexpected cash flow, such as a tax return or the $100 loaned to a friend you never expected to see again, could boost progress when you feel less motivated. However, your loan conditions could also change suddenly. For example, a nice set of appliances bought at 0% interest could suddenly reach 19% interest two years later. Also, an increase in the critical rate could increase your monthly payments or mortgage margin if you have a variable-rate mortgage. Stay alert!

Make good clothes for the future.

In addition to your debt repayment strategy, you could help by adopting good financial habits that will last your whole life.

If you always spend less than you earn, you can reduce your debts and even start saving for your projects. You can do this by reviewing your budget monthly or, at least, every 2 or 3 months. You will then always control your game plan and quickly see if you need to adjust to stay that way.

Avoid promotions that entice you to buy and finance what you can’t afford. Instead, stick to what you can afford on the spot, as this will save you surprises later: payments, interest, and bank charges of all kinds.

Finding creative ways to increase your income could also make all the difference in your budget.

These good habits will not only help you take control of your finances but also take control of your debts. Of course, you can’t eliminate them all. You will undoubtedly have some obligations for a good part of your life, especially for your house or car, hence the importance of knowing how to know them well and manage them. Your debt should work for you and your plans, but it shouldn’t prevent you from saving for the future.

Six steps to getting out of debt

From: Innovation, Science and Economic Development Canada

Do you frequently settle your accounts after the due date? Do you often write bad checks? Are you getting calls from a collection agency? These elements may indicate that your level of debt needs to be improved to manage.

The good news is that there are several steps you can take to straighten out your finances. This guide can help you develop a plan to take charge of and manage your debts.

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On this page

• Step 1: Prepare a budget.
• Step 2: Review your background
• Step 3: Develop a plan
• Step 4: Control and act
• Step 5: Get more for your money.
• Step 6: Plan
• Next steps

Step 1: Prepare a budget.

• Preparing a budget is the most critical step to controlling your finances. A budget is like a roadmap of your finances: it shows how much money you have, where it comes from, and what it should be used for. Use this step-by-step budget planner, which features tips, guidelines, and charts to help you understand where your money is going.
• To get started, follow the steps below.
  • Make sure you know where your money is going: Tracking your money will help you determine what’s coming in and out of your pocket. Every dollar you spend affects your overall budget.
  • Assess your needs and wants: Knowing the difference between your needs (something that is needed, required, or essential) and your wants (something you would like but don’t necessarily need) is critical to making an intelligent budget.
  • Think about your financial goals: Determine your short-term and long-term goals, and build savings into your budget for those goals.
• Expand your budgeting by exploring Statistics Canada’s Personal Inflation Rate Calculator. Calculate your inflation rate based on the goods and services you consume and determine how your spending habits compare to those of other Canadians near you.

Step 2: Review your credit history.

• Your credit report and credit score are the two primary tools lenders use to determine if you will be a good candidate for credit products and that you will be able to pay your accounts on time.
• Your credit rating will go up or down depending on the information in your file. For example: making regular, on-time payments will gradually increase your rating, but missed payments will decrease. In Canada, credit scores range from 300 to 900. A score of 600 and above is considered good. Ratings of 750 and above are generally regarded as excellent.

How to pay off your debts quickly?

Why is the credit score important?

• If you have a good credit rating, you could borrow money at a lower interest rate and pay less interest over the long term. A low credit score can make it harder to get loans, credit cards, leases, or mortgages and even lead to higher interest rates. Your credit history may also affect your eligibility for specific debt repayment options.
• Take the time to review your credit history regularly. Check your credit file and make sure it contains no errors. Checking your credit report will not affect your credit rating. You have the right to know what information is on your file and how you can order your credit report free of charge.
• Improving your credit rating takes time, but there are several steps you can take such as using a secured credit card and making sure you make all your minimum monthly payments. The Financial Consumer Agency of Canada has more tips for improving your credit.
  • Other resources to better understand your credit history.

Step 3: Develop a plan

• Do you need to figure out where to focus your efforts when taking charge of your debts? You can use many strategies to manage your debts and start paying them off.
• One is to pay the debts with the highest interest rate first. This means you’ll pay less interest over the long term and reduce your overall debt faster. Another strategy is to prioritize paying off your debt with the lowest balance while making the minimum payments on all your other debts. Getting rid of some debt quickly can help build momentum and motivate you to keep going.
• You can find more information on how to make a plan to pay off your debts by visiting the Financial Consumer Agency of Canada website.

How to pay off your debts quickly?

When to ask for help

• If you need help figuring out where to start, consider asking a budget or credit counselor for help. They can help you identify debt management options and develop a debt reduction strategy. For example :
  • What are the possibilities of consolidating your loans (also called pooling)?
  • Are you able to negotiate with your lenders or creditors?
  • Are you working closely with your mortgage lender to find the best budget solutions?
  • What approach should you take when it comes to your credit cards?
• Remember, don’t be afraid or ashamed to ask for help. An advisor will help you get back on track, take control of your finances and find solutions. Visit the Financial Consumer Agency of Canada to find out how to get help from a credit counselor.
• Do some research! Unsavory companies in the market might try to lure you in by promising to erase your debts and fix your financial problems. Check to see if the agency has had any severe or unresolved complaints, including late payments to creditors or false advertising. Know your rights and consult the regulatory authorities in your province for more information on the different debt management solutions.

Step 4: Control and act

• After preparing a budget and developing a plan, it’s time to act.
• Whether you make your plan or do it with the help of a credit counselor, stick to it and be consistent. Try making minimum payments on all your debts by their due date. After doing so, you could devote extra money from your budget to paying off your debts.
• If you can’t make the payments you’ve set out in your plan, look for other options. If you still need to do so, now is the time to consult a professional.
• Remember that sticking to your plan can sometimes be difficult, depending on your situation. The process of getting out of debt can be a long one. The trick is to take control of your debts before they become overwhelming.

How to pay off your debts quickly?

Step 5: Get more for your money.

• Sticking to a strict debt management plan can inspire you to find ways to get more for your money consistently. It’s essential to track your spending carefully to see where you can save money.
• First, examine your budget. Can you do little things to save and reduce your recurring expenses? It could be as simple as planning your weekly meals to reduce food expenses, planning your trips to save time and gas, or adjusting your thermostat to reduce your energy bills. Try the My Spending Calculator to learn how small purchases can add up over time.
• Next, take a look at your fixed costs. If you’re struggling to pay your fixed expenses, talk to your provider or switch providers to get a better rate. Lowering these monthly costs could save you money over a year.
• For example, many Canadians pay too much for their day-to-day expenses, such as mortgages, insurance, and utilities. The result is that you need more money to meet other financial needs. If you need help making your mortgage payments, contact your mortgage lender and work with them to find a solution. You can also get better rates for home or auto insurance and phone, TV, or Internet services.

Step 6: Plan

• When you’re on track with a budget and debt management strategy, you’ll need to have your eye on the future.
• Although your budget may include amounts for savings and emergencies, you should always be prepared for more considerable expenses, such as the purchase of a vehicle or household appliances or even a new house. Plan and research such purchases before you commit financially and ensure you know what you are getting into. For example, additional costs can be added to car loan payments or home mortgage payments and add up and strain your budget.

Establish an emergency fund

• An emergency fund is an amount set aside to deal with the unexpected. Everyone experiences, at one time or another, an emergency following an unexpected expense or a drop in income. Set aside three to six months of living expenses, but you can also aim to set aside three to six months of income. Both methods are suitable: choose according to your preference.
• These amounts seem challenging to achieve. This is why you have to save gradually. Saving a small amount regularly makes a big difference in the long run.

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