Are we ready to be free from our debt? Step one was to create a plan and FACE our current reality. Step two, set aside between $1,000 and $2,000 for an emergency cushion. Now it is time to laser focus on our debt and have it paid off as soon as possible!
The Snowball
The favourite method of More than Enough is called a debt snowball. Since money doesn’t disappear in $100 increments, the debt snowball allows us to take control of those slippery $2s, $5s and $10s.
1) Begin with a margin of $200-$300 a month of margin. We talked about how to do this in the blog Living with More Than Enough in 2015, read it for a refresher on creating monthly margin.
2) List out all consumer debts from lowest balance to highest balance. This includes credit card, car loan and Revenue Canada debts.
3) Take the loan at the top of your list and apply $200-$300 a month to the debt until it is paid off while only making minimum payments on our other debts.
4) Once the first debt is paid, apply the money to the next debt on your list. Proceed down the list until all the loans have been paid off.
5) Voila! You are now debt free!
If you would like a more in-depth look at this strategy attend a Financial Fitness Seminar. The snowball is examined in great detail and any questions can be answered and discussed. The seminars are on the 4th Thursday of every month at 6:30 pm. Don’t wait. Using this strategy, the average Canadian with the average amount of debt can have all their debts paid off in 15 years.
Consolidation
Consolidation is another method of paying off debt, and by far the more popular method. Consolidations are helpful and useful in many ways. They can save money and allow for time to FACE your current reality. Yet, consolidation must be accompanied by a strategy for staying out of debt.
1) We cannot use our home as a credit card. In recent years the government has placed many sanctions on borrowing against our homes. They recognize how dangerous it is to use our homes as credit cards.
2) Consolidation removes the pain and inconvenience of debt, consolidating it into one easy payment. In the short term this can save money, but often we find ourselves with the same amount of debt a few years later, in a worse situation.
3) Consolidation is a tool to manage money, but it needs change to accompany it. Consolidation must not replace our desire to be free from debt. We cannot live our old lifestyle after consolidating and we must begin to spend only what we make.
Increasing Income
Finally, increasing income is another great way of paying down debt faster. Whether this means a short term second job or using a promotion or raise to pay down debt, this is a simple and often effective way of paying off debt.
1) Don’t forget to use the second income to pay off debt. Do not increase your standard of living because you have a second income, instead devote all the money towards paying down debt faster.
2) Remember this is not necessarily a long term solution. Increasing income for 6 months or a year can go a long way towards being free.
3) Borrowing your way out of debt is not effective. Simply shuffling money around can only achieve a small piece of the puzzle. It is important to consider increasing income or paying off debt with our own cash as major strategies for being free from debt.
The snowball method is by far the most effective way for getting out of debt and staying out of debt. While consolidation can create margin in the short term, it needs a financial strategy to ensure we stay away from credit cards. Increasing our income is also a great idea, even in the short-term. If you are interested in learning more about how to pay off debt, attend the financial fitness seminar. Please email info@morethanenough.ca or call 613.520.4157 to register!