Have you ever paid attention to the national debt clock? It’s kind of staggering when you watch how quickly it climbs; it’s even more shocking when you look at what your “portion” is as a taxpayer. The purpose of the debt clock is to highlight the dangers of runaway debt and how shouldering debt can hamper the financial future for the country.
Your personal debt clock is ticking
Have you ever thought about your own personal debt in the same context as the Canadian national debt clock? Is your personal debt clock ticking as well, with balances rising, causing concern for your own financial future?
“The minute that you take out debt, your debt clock is already ticking. The longer your debts go unpaid, the more interest you accrue, making your debt grow. This is in addition to new debt that you accumulate in the process,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“Don’t let the ticking of your debt clock become a time bomb. Paying off debts is time-sensitive. The longer you wait to address them, the harder it will be for you to retain control over your financial future,” says Schwartz.
Since time is of the essence, here are some tips on how to pay your debts down more quickly.
Bare bones budget
What is it they say about short-term pain for long-term gain? Slice and dice your budget ruthlessly so that you’re covering your expenses, but are diverting as much money as you can manage towards debt repayment. This may mean giving up a number of luxuries, like eating out, entertainment, travelling or other non-essential treats, that will have to get shelved until the debt is paid.
A side note- don’t forget to include savings in your bare bones budget. It’s your safeguard against having to run up credit again in the case of emergency expenses.
Get more money
The first step to paying down your debt is obviously to stop spending and cap your credit. However, to pay those balances down, you need to generate more cash in order to put a dent in the debt more effectively.
Is it viable to get a part-time job, at least in the short term? Do you have belongings that you can sell? What about renting out part of your home or even renting a parking space? Drumming up extra resources can really give your debt repayment some momentum.
Have a plan
The Bank of Canada has just raised interest rates again for the second time in a couple of months. This is going to impact your debt load. This is important to note because as interest rates go higher, your money gets less mileage in terms of actually paying down the principal of your debt. That’s an even more compelling reason to pay your debts down swiftly, as rates are expected to continue to rise in the future.
Plan to attack your highest interest bearing card first, while making minimum payments on the others. High balances and high interest rates will keep your debt clock ticking away.
This might be a good opportunity to consider consolidating your debts, if you qualify. This will ease up cash flow and let you direct more of your money towards reducing your debt. If you stick to the plan, typically a consolidation loan will reduce your debts more quickly than trying to pay off single cards on your own, spreading payments around.