Your finances can feel hopeless when you’re buried under debt. Mounting bills, overdue utilities, and credit card balances that never seem to go down can feel insurmountable. It’s a struggle to get your finances in order, but the stress you’re under makes it harder to see clearly, evaluate your situation, and start the real work of paying it all back.
It can feel like it will take forever to pay back debt, and that feeling can prevent you from making real progress. More often than not, though, it’s just a feeling, not cold, hard numbers.
When you step back to actually calculate how long it will take you to resolve your financial problems, you can see just how big the problem is. When you use tools like the debt calculator from Credit Canada, Canada’s first and longest-standing non-profit credit counselling agency, you also learn how much total interest you’ll wind up paying depending on the strategies and tools you use to budget and manage debt.
These are some of the strategies most commonly used to get back on the path to financial health, as well as some insights into their effectiveness.
Make Minimum Payments
When you get your credit card bill, you have a few options. You can make a minimum payment, pay the statement balance, pay the current account balance (including charges made since your last statement was issued), or a custom amount.
When you make minimum payments, you keep your account in good standing. If it’s all you can afford, it’s better than missing a payment.
However, minimum payments will string you along for as long as possible. It can take years, even decades to pay off a large credit card balance with minimum payments alone.
Snowball and Avalanche Methods
These are two strategies you can use to get out of debt sooner on your own. They focus on eliminating debts one-at-a-time.
With the avalanche method, you pay off the debt with the highest interest rate first and progressively move down the list. That’s because you’re paying more interest on the dollar for these accounts. You will wind up paying less total debt in the end.
The snowball method starts with the smallest amounts you have outstanding. It’s less about the math than it is the motivation. As you cut down on your bills and credit cards, you’ll gain confidence in your ability to keep it up and make progress.
Debt Consolidation Programs
Both the avalanche and snowball methods are about paying less interest and getting out of debt sooner than making minimum payments. The idea behind a Debt Consolidation Program is the same, but it can reduce your interest rates or eliminate them altogether with the help of a certified Credit Counsellor from a non-profit credit counselling agency.
A certified Credit Counsellor can negotiate with your creditors to stop collection actions and provide relief on interest rates. You can then make a single payment that is disbursed to all of your creditors on the program.
It will save you money in the long-term and get you out of debt sooner. Ask about non-profit credit counselling services and start saving.