Using credit in our every day lives has become commonplace. While this can be good, allowing us to afford a home earlier than we could save for one, borrowing wisely takes good debt management skills and responsibility.
Whether you are deep in debt and looking for help to reduce that debt, or looking for ways to borrow smarter, pay less and get control over your debt, we recommend you follow a 5 step approach to being a better borrower.
1. Pay Expensive Debt First
While you may be tempted to pay off your largest debt first, start with the debt that charges the highest interest rate. The number one cause of financial trouble in Canada is carrying balances on high interest credit cards. Learn how to eliminate your credit card debt. Once you have paid off the most expensive debt, continue to make the same payment each month to your next most expensive debt. In the meantime, don’t ignore your other debts — continue to make at least the minimum payment on these debts.
2. Reduce Your Interest Costs
Make a list of all of your debts and the interest rate they charge. There are many ways of reducing the interest rate on your debts so you can pay them off faster. Many credit card companies offer low introductory rates, see if it makes sense to take advantage of those offers. Consolidate your high interest debt into a debt consolidation loan or refinance with a second mortgage. Learn what mortgage amortization makes sense for you and how different types of interest affect the cost of your personal loans.
3. Avoid Debt Traps
Beware the minimum repayment trap. Here’s how it works. The more you pay on your loan, the lower your minimum payment becomes and the longer it will take to reduce your debt. Instead, make fixed payments, as much as you can afford, towards your debt each month until they are paid off. Use our debt repayment calculator to see how much faster you can pay off your debts by paying more than the minimum payment.
Avoid expensive loans like payday loans, which can often become a cash flow trap themselves. Keep track of your expenses and debt repayments with a personal budget. Knowing where your money goes is the best way to avoid using credit to pay your bills.
4. Know When To Get Professional Help
Start off with our debt assessment. If your debts are manageable you can continue dealing with your debts on your own. If your debts are more than you can handle you still have options to reduce your debt.
If you need help reducing your debt, contact an expert today.
5. Repair Your Credit and Stay Out Of Debt
Your credit rating determines whether or not you will be able to get a loan in the future and what the cost of that loan will be. A bad credit report might mean that you will not be able to get a car loan, mortgage, or personal loan. Begin by repairing your credit with a secured Visa card but remember to pay off the balance each and every month so you don’t get back into trouble.