4 Steps to get out of credit card debt in Ontario
August 10, 2017 | Posted by: Richard Allatt
Being in debt in Ontario is undoubtedly stressful, more so when the interest rates keep pushing your overall debt to skyrocketing amounts. Many people fall into the temptations of unnecessary expenditures and end up making purchases more than they can afford. Nonetheless, there are smart ways to reduce your debt and regain a sound financial health. Follow this step-by-step solution to help you manage your finances and work your way toward a debt-free life.
1. Create a debt payoff plan.
Take time to come up with a strategic debt payoff plan that fits your budget, and be sure to stick with it. Determine the amount of your total debt load so you can devise a realistic plan. Make a list of all your debts, including the debt amounts, due dates, creditors, and monthly payments. Identify your monthly expenses, such as electricity bills, transportation costs, and groceries. Calculate how much is left from your overall monthly income after deducting monthly expenses, and allocate a portion to debt payment.
It helps to cut back on certain expenses and use the extra money to pay down your debt. When making payments, check your debt list and update it as your debt changes. Also, make a bill payment calendar to make it easier to know which bills to pay with your paycheck.
2. Prioritize your most expensive debt.
If you carry a balance on multiple cards, it's essential to make at least minimum payments. Compare the interest rates of your credit cards, and focus on paying off the balance with the highest interest first. Double or triple your minimum payment on the most costly card. Whenever your budget allows, try to pay weekly instead of monthly. Early and multiple payments help you pay off debt more quickly. You can continue to make the minimum payment for your other credit cards while increasing your payment on the credit card with the highest rate.
After paying off the card's balance, focus on the next credit card with the highest interest rate. Make sure to stay consistent with your debt repayment plan. Avoid skipping or easing up on monthly payments even as your debt decreases considerably. Always keep in mind that your goal is to drive your overall balance down to zero.
Consider consolidating your credit card debt. You can take advantage of your home’s equity by refinancing your mortgage, saving money and increasing your cash flow every month.
3. Pay your bills on time.
Avoid missing monthly payments, as interest rates and finance charges usually increase when you consecutively miss payments. Paying late is a bad habit that makes it more difficult to pay off your debt, because you also need to pay a late fee. If you tend to forget about due dates, create a reminder on your phone or computer that will alert you several days before the payment is due. Create a list of your pay-down goals, and put it near a calendar or in your wallet to keep yourself reminded whenever you're tempted to skip payments. If you miss a payment, settle it as soon as possible so it won't be reported to a credit bureau and affect your credit score.
4. Include your holiday bonus in your debt payoff strategy.
Now that you're determined to reduce your debts, it helps to allocate your bonus to debt payment instead of spending it on luxury purchases. This way, you can accelerate your debt payoff and also improve your credit score. Additionally, save any extra cash and build an emergency savings fund by putting part of your bonus in an investing account or a high-yield savings account. Keep adding to your emergency savings fund throughout the year. When an urgent expense comes up, you don't have to use your credit card as you have a backup savings plan in place.
These are the first steps that you can do to take control of your debt and get on the right track. Be sure to limit the use of your credit cards, and avoid making unnecessary purchases. If you can't stay away from the temptation, bring cash with you instead, and leave your credit cards at home whenever you go shopping.