If you have a high amount of debt, and many do, with the average U.S. household owing $148,298 and the average Canadian household at nearly $73,000, it can feel like you’re drowning and can’t get your head above water.
Among those who live paycheck to paycheck, sometimes turning to online loans in Canada or fast cash options in the U.S., their credit scores have likely taken a bit hit too. Either way, too much debt makes it difficult to take out a loan or a car or secure a mortgage if you hope to own a home. The lower your score, the less likely lenders are to approve you, or at least for the amount you’re hoping for and at a decent interest rate. Sometimes it can even affect your ability to land a coveted job.
No matter what your financial goals, the less debt you have, the better. These options may allow you to take action quickly so that you can dig your way out from beneath that big pile of debt.
Tackle One Credit Card at a Time
If you have multiple credit cards with balances, it’s a must to pay the minimum on each one every month, but you’ll want to go beyond that. Focus on paying them down one at a time, perhaps starting with the card that has the highest interest rate. Or, you might begin with the one that has the smallest balance. Once that’s paid off, move on to the card with the next smallest balance – getting those down to zero is a great way to stay motivated until they’re all paid off.
Make Smaller Payments More Often
A great strategy for paying off debt faster is to make biweekly payments, which total your monthly payment. In the same way a biweekly mortgage works, homeowners pay half their monthly mortgage amount but pay it every two weeks. As there are 52 weeks in a year, that results in 26 half-payments, or 13 instead of 12, if you made them monthly. On a home loan, biweekly payments can take seven years off a 30-year mortgage.
Distributing smaller payments throughout the month is another option that can help even out cash flow, making it easier on your budget. Over the course of the year, you’ll be making more payments to reduce the amount you owe faster, which helps to save on interest too. If you’re paid every week, for example, you might make a small payment each payday rather than one large one. If you get any unexpected money such as a gift or bonus, put it toward your debt to pay it down even faster.
Ask For a Lower Interest Rate
If you have a good credit score, ideally 730 or higher, you may be able to reduce interest rates on your credit cards. It doesn’t hurt to ask – simply call each one of your credit card companies. If you can get even a percentage point knocked off, it can result in significant savings over time.
Transfer Balances, But Do So Carefully
Those with good credit scores usually get offers from credit card companies to transfer balances from other cards to theirs at a zero interest rate for a certain period of time, often anywhere from 12 to 18 months. By transferring a balance from a high interest card, you could potentially save hundreds of dollars. The key is to take advantage of that period to pay off the debt before the zero-interest introductory period ends. If you don’t, you could end up worse off financially than when you started.
