Getting into debt is easy. Get a credit card or two. Buy a new car with a "simple" monthly payment. Add in your regular bills, maybe a new cellphone plan, a yearly vacation or two and voila, you owe some dollars. To get out of debt, you need a plan and you need to actually follow that plan.
Simple right? Well, first you need to write down the plan and put some timelines to each part of your plan. You now will probably have to feel some short-term pain in your spending habits to reap long-term gains in your bank account. The results will be sweet!
Keep your plan in a handy spot like on your smartphone, laptop or your fridge so you can make it a priority to check one task off your list each week. This way, you will develop a healthy "financial" habit.
Here's a simple checklist to help you start building your plan:1. Make your list
We know it's not fun, but it's a necessary first step. Take all your bills and put them in a chart that includes: name of creditor, interest rate, balance and your minimum monthly payment.2. Lower your rates
Seriously, this is easier than you think. Call up each of your credit card companies starting with the ones with the highest interest rates and ASK them to lower your interest rate. You can tell them that other credit cards are offering lower rates and you wanted to let them keep your business. They won’t give you an answer on the phone, but, you should receive a letter with a new lower rate within a couple of weeks.
Or, do a balance transfer. Many credit card companies will allow you to transfer your balance from another card to theirs and they charge you 0% for 6 months. They assume that you will see zero being added and will spend more. But since you are very disciplined you will keep paying the balance down as if it was still at 19%.
Consider getting a debt consolidation loan. If you have equity in your home, you can get a better interest rate to help you clear up all your debts. Often you can get these loans at considerably less than your credit cards. Once again, keep your monthly payments up as if you were still paying a credit card of 19% interest and watch your balance go down rapidly. Not sure where to start? Click here to learn more about consolidating your debt!
Tackle those other bills. Contact your car loan company. If you have been paying your loan on time, they may lower your rates. Now you are ready to tackle the utility companies. Then, tackle your cellphone bill. In most provinces you can often get a better rate just by threatening to switch. They often have better plans than the one you are on but will only offer it when you say you are going to leave.
3. Get your numbers
What is the amount you need to pay off all your debts? Now that you have a number in mind you can set a goal. Can you pay this off in six months? 12 months? Two years? Get your credit score number. How much does it have to improve before you can qualify to buy a house? Check out our guide to becoming a first time home buyer to get you motivated!
4. Now, you are ready to make the plan
What will be your target debt? Is it the credit card balance with the highest interest rate? The lowest balance? Set a short-term goal to pay one card off in a manageable amount of time. One down and three to go sounds better than tackling all the debt at once.
5. Monitor your progress weekly
As with any habit, you need to practice what you preach! How quickly are your debts coming down? Is your credit score going up? It should if your debts are coming down. Stick with your plan and don’t get discouraged, your debt wasn't built in a day, and reducing it will take time. If you follow your plan, think about how much you will have achieved at this same time next year.
We are here to help!
As you work on your plan, you’ll need to make adjustments to your budget along the way so you don’t overspend and slide back into debt. Plus, if you don’t have an emergency fund, consider setting some money aside in savings beforehand.
If you need help getting into the debt-relief habit, we will be happy to help you start and guide you along the way. Nothing makes us happier than to tell people like you that you are approved for home financing cause your debt-income ratio is so awesome!
Not sure where to started in creating your list? No worries - we got you covered! Fill out the form below to get your very own debt checklist sent to you, and get that jump start you need to finally become debt-free!