If your debts are very high, or you have high interest credit card debt, you may not be able to find enough savings in your budget to pay off your debts within a reasonable period of time. If that is the case you may need to consider other possible debt reduction strategies that can help you reduce your overall interest costs and your monthly debt payment so it will fit into your budget.
Here are 3 possible strategies, depending upon the severity of your debt and how much room you have in your budget for debt reduction. We’ll discuss how each affects your interest costs and debt repayment.
Debt Consolidation Can Lower Interest Rates
If you still have reasonable credit, you may be able to consolidate your debts into one single, lower interest loan. By reducing your interest rate, more of your monthly debt repayment will go towards principal reduction allowing you to get out of debt sooner. A word of caution however. If you choose to lengthen the term of your loan to reduce your monthly payments so they are easier on your budget, you may not end up saving interest in the long run. The longer it takes to pay off a debt, the more interest you will pay, no matter what the rate.
A Debt Management Plan Can Freeze Interest
If the interest costs are so high they make it hard to repay your debts on your own, talk to a credit counsellor about a debt management plan. You will still have to pay the full amount you owe but you may be able to save on interest and penalty costs. You can also lump several debts into one DMP making it easier to manage your payments.
Consumer Proposals Eliminate Interest and Settle Debts
If you owe more than you can repay, it may be possible to make a proposal to your creditors through a Trustee in Bankruptcy to pay a portion of what you owe (usually 35% or so) over a period of time (typically three to five years). Your bankruptcy trustee will help you negotiate a plan that satisfies your creditors and fits within your budget.
No matter what approach you take or what debt repayment strategy you choose, don’t give up too easily. You did not get into debt in a day and it will take time to get out of debt. Quick fixes don’t work, but sticking to your budget, no matter how hard, will result in success.