There’s no denying the fact that debt sucks. It can get us into big trouble when it comes to our finances but it also leads to stress and frustration. If you are here because you’re looking for a fix then you’ve already taken the first step and know how important it is to pay off debt. And I’m here to help! We’re going to figure out the best plan of attack so you can start getting ahead.

You’re Not Alone

The first thing I want to emphasize is that you are far from the only person dealing with debt. I’ve been there and so have many other Canadians. The average consumer debt in Canada in 2017 was $29,312. And that’s only consumer debt which doesn’t include mortgages. Millenials and Gen Z are burdened with the highest borrowing levels; which makes sense when you think of the increase of student loans and the fact they are earlier in their careers.

If you are a Millenial or Gen Z who is dealing with debt then the best thing you can do is to start taking it seriously ASAP.

Negotiate Your Interest Rates

To get your debt repayment going you’ll first need to know where all your debts are. Make a list of every credit card, student loan, car loan, etc. that you currently have.

Once you know which companies you are dealing with I suggest you get on the phone with all your credit card companies and ask them to lower your interest rate. Normal interest rates on credit cards can be upwards of 18% and if you’re carrying a balance those charges can add up fast. For example, if your balance is $5,000 at an interest rate of 18% you’ll be paying about $70 each month in interest. How did I figure that out? Credit card interest is charged every day so you take 18% and divide it by 365 days. That gives you 0.049%. Multiply that by your $5,000 balance to get a daily interest charge of $2.46 or $73.80 over 30 days.

This is why negotiating your interest rates with your credit card companies is an important step. If you can get those charges cut in half you’re doing yourself a big favour.

Another way to decrease your interest rates is through a balance transfer credit card. You’ll need to have good enough credit to get approved for a new card but you can get really good promotional rates. I have an entire post dealing with that so if you’re interested then check here.

Choosing a Strategy to Pay Off Debt

There are two primary methods for debt repayment, and we’re going to look at both of them. There’s no right or wrong method; it really depends on what will work best for you. To ensure your debt repayment plan goes as quickly as possible you really need to stop using credit. If possible switch to a cash (or debit) only budget until your debt is cleared. Credit cards can be great for rewarding your spending but until you can pay your balances off in full you shouldn’t keep adding to them.

The Debt Avalanche Method

Up first we’ve got the avalanche (or ladder) method where you pay off your debts from highest interest rate to lowest interest rate, simple right?

To get started you want to take that list of creditors you made before and add some information. This can be on a napkin, post-it, fancy spreadsheet; whatever you want just do it. The information you need to include is the company name, current balance (approximate is fine), interest rate, and minimum monthly payment. You’ll need this list for either method. If debt is a problem for you go do this right now….I’ll wait. Ok, done? Perfect.

For the avalancheĀ method, you’re going to order that list from highest interest rate to lowest interest rate. Now the organization part is done, so easy. The hard (but rewarding!) part comes now that you actually have to start paying! What you’re going to do EVERY MONTH is pay the minimum amount on all of the debt items except for the one with the highest interest rate. For that one, you are going to put every last penny you can towards it. Once the top one is paid off you move down the list until everything is paid in full. And then celebrate…but not on credit šŸ˜‰

Debt NameCurrent BalanceInterest RateMinimum Payment
The Bay Card$390.0018.99%$11.70
Student Loan$10.500.005.00%$315.00
Car Loan$4,500.003.00%$135.00

The Debt Snowball Method

The snowball method was made famous by personal finance guru Dave Ramsey who’s an author, speaker, blogger, etc. He’s not my favourite person in the world but his snowball method is solid. If you want some more reading, his book ‘Total Money Makeover‘ is good for helping your motivation. It can get a little preachy, but his basic concepts are helpful.

With this strategy, you are going to take that same list of your debts but now organize it from smallest balance to largest balance.

Then you do the same thing as above. Pay the monthly minimums on all but the first (smallest) balance and knock them off one by one. The idea behind this is that the quick wins at the beginning will boost your motivation to tackle the larger balances down the page.

Debt NameCurrent BalanceInterest RateMinimum Payment
The Bay Card$390.0018.99%$11.70
Car Loan$4,500.003.00%$135.00
Student Loan$10,500.005.00%$315.00

Can’t Decide?

If you’re struggling to decide which option is the best fit then I would recommend going with the debt avalanche method.Ā It will end up being saving you a few bucks in interest charges over the life of your debt which makes it my first choice. If you find it hard to stay motivated then the debt snowball is likely a better fit. At the end of the day, it doesn’t really matter which option you choose. The most important thing is choosing one and sticking to it. And if you find one plan isn’t working for you, there’s no rule saying you can’t switch part way through.

Now that you have a plan and are feeling motivated to crush your debt you should look for ways to either increase your income or decrease your spending so you’re done as soon as possible.

Struggling to pay off debt? You need a strategy and the two best are the debt snowball and the debt avalanche.

This post was proofread by Grammarly.


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