What is the best way to pay debts? – Moneysense

Many Canadians have a debt of different amounts and for many different reasons. Common species Debts, credit card debt, credit lines and personal loans and mortgages can be car loans.

According to Credit Bureau, the Canadian consumer debt reached $ 2.54 trillion in the third quarter (Q3) of 2024 in the third quarter (Q3) in the third quarter (Q3) Equifax Canada. That is an increase of 4% compared to the same period last year, with non-mortgage debt by 3.8% compared to Q3 2023. The average consumer debt is $ 21,810, an increase of $ 796 compared to the previous year. The total credit card debt continued to rise in 2024 (an increase of 9.4% compared to 2023), partly due to population growth and partly because Canadians wear a higher average balance.

The reality is that many Canadians struggle financially. A recent study by insolvency -Trustee Harris & Partners shows that 57% of those who have responded said that their income is not sufficient to cover the base such as rent, food and utilities. Many Canadians therefore increasingly rely on credit cards, other types of consumer credit and the support of family to make ends meet.

There are a few common strategies for repaying debts, and which to choose depends mainly on your personality. Consider your unique situation and money challenges and patterns to help you determine which solution might be best for you. Here are 4 to consider.

The debts Snowball Method

If you are motivated by performance, you may find the “Debt Snowball” strategy. With the help of this approach you only continue to make your minimum payments on all outstanding debts and then use excess money to pay the debt with the smallest dollar value first (regardless of interest). For example, let’s say that you focus on paying off a personal loan of $ 3,500 with an interest of 8%. It may not be your biggest debt or your debts with highest interest rates, but you can feel good about paying it off. You then tackle your next smallest debt amount – say a $ 11,000 credit card balance with an interest rate of 21% – and restart the process until all outstanding debts have been reimbursed.

The debt of the debt avalanche

Perhaps you are more motivated by saving about the interest you pay. In that case you would use the “Debt Avalanche” strategy, whereby you pay the minima to all debts but pay some excess money every month on the debts of the highest interest rate power the debt amount. In the example above, that would be the credit card debt of $ 11,000 with an interest rate of 21%. After you have paid that in full, you pay the following debts at highest speed (the $ 3,500 personal loan at 8%), etc., until all your debt has been paid off.

Every strategy to pay debts has its own good points. The Strategy Strategy Strategy, for example, saves you more money in interest costs, while the Snowball approach to the debt can keep you more motivated based on the faster, small successes en route. Determining timeline goals, which detail you should take to repay each debt, will help you to keep you focused so that you continue to pursue your goals. Make sure you continue to pay the minimum balances on all debts, so that they will not reduce your credit score, yield more interest or (worst case) lead to the cancellation of your credit cards.

Balance transfer to a credit card with a lower interest rate

Another solution, if you are eligible, is that you may be able to transfer one or all your credit card balance to a new credit card with a lower interest rate (sometimes zero interest if you have a really good score). This still requires consistent, timely payments, but you will collect less interest.

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Some credit card rates are special “promo” rates that are only offered for a limited time, usually 6 or 12 months after you sign up. At the end of the special offering period, the rates will return to the regular higher rates – check the small print to find out how much. Although you have the lower rates, you will not be much (or no) new interest, so that your payments are directed at the principal sum. This helps to reduce the balance at a faster pace than if you also paid interest.

You may be able to consolidate different cards with a smaller balance with this promo offer and then make only one monthly payment. But beware: this strategy costs discipline! Make sure you concentrate on paying as many downs as possible prevent create new guilt.

Debt consolidation creditS

If you prefer a more structured system to pay debts, a debt consolidation credit might work best. It gives you a fixed interest and a fixed payment amount – usually paid every month – over a fixed period. This can make a better planning of the cash flow possible, because you know exactly what amount your debt payment will be every month for a very specific period.

Think especially about how great it will feel when your debt is reimbursed and eliminated. Keep this top of thoughts while you continue to Nulschuld and, ultimately, a savings plan in the longer term.

Every strategy to pay debts has its own good points. The Strategy Strategy Strategy, for example, saves you more money in interest costs, while the Snowball approach to the debt can keep you more motivated based on the faster, small successes en route. Determining timeline goals, which detail you should take to repay each debt, will help you to keep you focused so that you continue to pursue your goals.

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About Janet Gray

Janet is a certified financial planner with more than 20 years of experience and has been a planner with only advice at Money Coaches Canada since 2014. She can regularly be seen on CBC, Globe and Mail, Toronto Star and more.