4 Suggestions for Paying Off Debt

Paying off high-interest credit card debt is one of the best things you can do for your finances. When you have high-interest debt, too much of your money is going straight into someone else’s bank account. The best thing you can do is to reduce your debt as quickly as possible, and start putting that money to work for you.

If you are trying to figure out what you can do to pay off debt, here are 4 suggestions for paying off debt:

1. Pay More than the Minimum

It will take you forever to pay down your debt if you only pay the minimum. This is because a large part of your minimum payment actually goes right to interest. The key to reducing your debt quicker is paying down the principal. Look at where you can find room in your budget, and then pay more than the minimum.

If you have multiple cards, focus on one card at a time, while you pay the minimum on the others. This can help you boost your efforts as you pay off your debt.

To really improve your results, negotiate with your credit card issuer. In some cases, you might be able to get a rate reduction, which can help you put more toward your principle and boost your ability to pay down debt.

2. Liquidate Your Savings Account

Erase DebtThis is a tricky one to decide on. On the one hand, you want an emergency fund to help you deal with unexpected expenses. On the other hand, you are lucky if the money is earning 1% while your credit card interest rate is probably more than 18%. That’s a big disparity. It’s like getting a risk-free return if you just pay off your debt with a portion of your savings. But it’s important to be careful as you do this. Perhaps you shouldn’t deplete your account completely in order to make this work, keeping a small fund just in case. Carefully consider your options and weigh the risks as you determine whether or not you want to do this.

3. Increase Your Income

While you can cut back and use the money you save to reduce your debt, you will likely do even better if you can increase your income. Look for ways to earn a little more money. This might include getting a part-time job, or starting some sort of side gig. In some cases, you might be able to earn a little bit more with the help of a raise at work.

Find ways to increase your income, and then put all of that toward paying down your debt. The more you can make, the faster you will be rid of your high-interest debt.

4. Consider Bankruptcy as a Last Resort

There are some cases where you run out of options. If you have done whatever you can to pay off your debt, and if it keeps piling up, or if you have had a major financial catastrophe like a job loss or a medical emergency, you might consider bankruptcy as a last resort. This will impact your credit score quite a bit, however, and you might find other issues associated with bankruptcy. But it is an option if you feel like you have no other recourse.

Written by Tom Drake

Tom Drake is the owner and head writer of Canadian Finance Blog. While you’re here, consider signing up for the RSS feed or email subscription. Both deliver the latest articles directly to you everyday! Have a Twitter account? Then follow me for all the latest posts or to send me any comments or questions!

6 Responses to 4 Suggestions for Paying Off Debt

  1. Michelle says:

    We are working on increasing our extra income as much as we can so that we can pay off debt. Can’t wait until it’s all gone! :)

  2. Bryan Jaskolka says:

    These are great! I too, really like the “increasing income” point. Here are some other great ways to pay off debt, including saving money by shopping online – sometimes for free! http://www.canadianmortgagesinc.ca/index.php/five-steps-to-help-you-get-out-of-debt/

  3. Hi Tom,

    Thanks for writing this great suggestions. I think we all need to help and help each other to get out of debs forever!
    At first you don’t see that you are giving away your future work to pay all those interest. Or because some financial problems we had to get into debts.
    But now is time to get out of it all, every little step is a very encouraging one!

  4. niterainbow says:

    Hi Tom,

    Thank you so much for sharing your ideas. Another one would be to refinance your house to get some extra cash and sell of some of the unwanted stuff, including jewelry.

    Visualize and cut your expenses. One needs to understand why do they do it. It is to easy to live in debt as everybody else does it.

  5. Jack says:

    Hello Tom,

    Your article is really helpful. I was looking information about Paying Off Debt and i got it from here. Thanks for sharing such a useful information.

  6. Don Antle says:

    Being in the Debt Consolidation part of finance, paying off debt is our number one priority! Paying off higher than the minimum is a great strategy to start with as you stated. As of March 2012, $103,000 is the average household debt in Canada, paying off just a little extra will drive you faster to financial freedom. Paying on time or early goes in that same pile of strategies as well. When finances are tight, 59% of people would pay their credit card bills last. Bankruptcy is the worst idea we instill in our clients’ eyes too. It is crazy the amount of people who take the “easy” way out. Tom your article was great… Thank you for all of your insight! Keep it coming!

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