Paying off debt can feel like an uphill battle, especially if you're trying to balance your debt repayment while keeping up with other daily living expenses like rent, groceries, and a car payment.
The quicker you can get out of debt, the less stress you’ll have, and the easier it will be to focus on other financial goals like saving for retirement or building an emergency savings account.
Below, I’ll explain how to assess and prioritize your debt. Then, I’ll share some of the best strategies to help you manage your debt and pay it off quicker so you can finally experience the freedom that will help make it easier to reach your financial goals.
From 2022 to 2023, Canadian household debt rose by 4.2 per cent to a total of $2.34 trillion, according to TransUnion Canada’s Q2 Credit Industry Insights Report.
Matthew Fabian, director of financial services research and consulting at TransUnion in Canada, said in a news release that “the combined pressure of a high cost of living and elevated interest rates has created a payment shock, as the cost of debt has grown even heavier for some Canadian households.”
So if you're struggling to get out of debt, the first thing you should do is assess your total debt.
Make a complete list of all of your personal debts and write out how much you owe to each creditor, including:
Next, you’ll want to prioritize your debts. Generally speaking, you want to get out of high-interest debt (often incurred with credit card debt or personal loans) the quickest.
Mortgages and student loans typically have lower interest rates, so paying them off quicker may not make as big of a difference. As long as you’re making your minimum monthly payments, I would prioritize paying off high-interest debt first, as the compounding interest can cost you a lot of extra money in the long run. This is how credit card companies trap you.
Whether you're dealing with credit card balances, student loans, a mortgage, being behind on car payments, or simply falling on hard times and taking out a personal loan, these strategies will help you get out of debt faster so you can get your finances back on track.
1. Consolidate your debt
Debt consolidation involves combining multiple debts into a single loan, typically with a lower interest rate. This strategy can simplify your monthly payments and potentially reduce the total amount of interest you'll pay over time.
Consider consolidating if you're juggling several high-interest debts, and you can secure a consolidation loan with a lower rate. This move can streamline your finances, making it easier to focus on one payment and pay down your debt faster.
2. Get a side job to make higher debt payments
Picking up a side job or hustle can help you eliminate your debts quicker, especially if you put all of your profits into debt repayments. Some good side jobs to consider could be:
3. Negotiate better terms with your creditor
Approach your lenders to discuss options like lowering interest rates, waiving fees, or modifying repayment plans. Be honest about your financial situation and be ready to present a case for why the adjustment is necessary.
Successful negotiation can lead to reduced payments or interest rates, making your debt more manageable and accelerating your journey to being debt-free. Before you negotiate, gather all of the information you can regarding your account standing and any competing offers you might have as leverage.
This won’t work all of the time, but it won’t hurt to try.
4. Cut your living expenses
Fifty-one per cent of Canadians under 35 are living beyond their means, according to a 2023 report by the Healthcare of Ontario Pension Plan. This means that a big portion of the country has taken on bills and expenses that they technically shouldn’t be able to afford.
Take car payments, for example.
Financial advisors typically caution that your car payment should be no more than 10 per cent of your monthly income. This means that somebody with a $500 monthly car payment should ideally be earning at least $5,000 per month.
The problem is that cars are more expensive than ever and are a necessity for many people. As a result, many car buyers get lured into financing more of a car than they can really afford.
If this sounds like your situation, consider trading in your newer car for a more affordable used car with lower monthly payments.
Some other areas you could cut back spending in could be:
As you cut back, keep track of the extra money you’re saving and put it towards making higher debt payments.
5. Ask your employer for a raise
One of the simplest ways to get out of debt quicker is to increase your income, and one of the easiest ways to increase your income is to ask your employer for a raise.
While some companies give out raises on a steady annual basis, others are a bit more stingy and wait for their employees to come to them first.
If you haven’t received a raise in the past year, consider approaching your employer and making a case as to why you should be paid more, or consider explaining what more responsibilities you could take on in exchange for higher pay.
The purpose of an emergency savings account is to provide you with a financial safety net that can help you cover unexpected expenses such as auto loans, medical expenses, home repairs, or job loss.
When these expenses come up, you’ll be able to dip into your emergency savings to help cover costs instead of having to incur high-interest credit card or personal loan debt.
Not sure where to start? Keep reading for some insightful tips on starting your first emergency savings account.
Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers on his Wealth Awesome website.
Do you have a question, tip or story idea about personal finance? Please email us at dotcom@bellmedia.ca.
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