Dealing with Debt: Six Ways to Reduce Debt

If you are like many Canadians, you probably spent more than you planned at Christmas, and now you have more debt than you can handle. Let MoneyProblems.ca help you in dealing with debt. Here are six great ways to reduce your debt:

1. Don't skip a payment

At this time of year credit card companies tempt you with "skip a payment" offers. Don't make a payment this month, they say, you can make it up later. Our first advice related to you dealing with your debts is: don't fall for it. All you are doing is adding interest on interest. Your debt increases, and with credit card rates averaging 18%, you are digging yourself into a hole. Even if you can't make your full minimum payment, send as much as you can to reduce your future interest costs (thus lowering your debt load).

2. Don't skip a payment, again

"Don't pay a cent event". "No payments for 90 days." These offers sound great, but accepting them is not a great way of dealing with your debts, because if you are one day late with your payment, you will get charged interest from the date of your purchase; with interest rates as high as 35% on this type of financing, a late payment will greatly increase the cost of the merchandise you purchased. The solution? Find out when the payment is due, and make sure you pay it two weeks early so that your payment arrives in time to avoid the interest.

3. Shop around

Make sure you know what interest rates you are paying on all of your credit cards, and shop around for the best rate. Many cards offer low introductory rates, so decide if it makes sense to take advantage of these offers. But beware! Read the fine print, because sometimes there are balance transfer fees when you transfer balances. Don't hesitate to contact your credit card company and ask for a better interest rate, or lower fees. They don't want you to switch, so they may make a deal.

4. Get a home equity loan

A home equity loan may help you in dealing with debt. It may take the form of a secured line of credit at the bank, or a second mortgage through a mortgage broker. Because the loan is secured by equity in your home, the interest rate charged will generally be lower than other forms of financing. A home equity loan can be used to pay off higher interest rate credit cards and loans. However, remember that you have now reduced the equity or value of your house, so resist the temptation to run up the balances on your credit cards again.

5. Get a tax refund

If you are expecting a tax refund, file your taxes as soon as you get your T-4 and other information slips. For faster refunds, use the government's EFILE or NETFILE services (see your tax return for details). By filing your taxes in February or March, you will get your refund one to three months earlier than if you waited until the April 30 deadline. For an even faster refund, request direct deposit (on page 4 of your tax return).

6. Make a deal with your creditors

If all else fails and you still cannot make your payments, filing a consumer proposal may be required. A proposal is a deal that you make with your creditors, and is often used to combine all of your debts into one monthly payment. Consumer proposals can only be filed by bankruptcy trustees licensed by the government.

With this help, dealing with debt should be easier for you. Good luck, and remember, once your cards are paid off, keep them paid off.