Debt can be a major source of mental and financial stress in your life, but learning how to pay off debt isn't as difficult as you might think. With help from a professional credit counsellor and a debt consolidation program, you can achieve financial freedom in as little as three years! The key to success is developing a plan-of-action and then sticking to it.
Step 1: Speak with a Credit Counsellor
Why try to pay off your debt alone when you can get the support and advice of a credit counsellor to guide you? Counsellors from organizations like Credit Canada have helped thousands of people like you consolidate and eliminate debt, and they're ready to guide you on a direct path towards financial freedom. Getting started is really easy. All you have to do is fill out a debt assessment form and an expert will contact you to set you up with a free counselling session with a certified debt professional. It can be face-to-face or over the phone — the choice is yours.
Step 2: Enroll in a Debt Consolidation Program
With a credit counsellor by your side, you're ready to start making some serious debt elimination moves. If you're concerned that you may not qualify for a debt consolidation program, there's no reason to worry. During your free appointment, your certified credit counsellor will review your debt, your current expenses, and then give you all of your options to eliminate your debt. It's 100% confidential.
A debt consolidation program can immediately help you in two ways: 1) It places all of your debts into a single account, and 2) It reduces or eliminates the interest on your debt. Learn more about how a debt consolidation program can work for you.
Let's say you're starting out with $20,000 in overall debt across three separate accounts with different interest rates, one of which is more than 10%. Your counsellor will negotiate with each one of your creditors to either completely stop or significantly reduce the interest on your debt, as well as a new debt repayment schedule that works with you and your budget. So all you have to worry about is making a single monthly payment that then gets disbursed to all of your creditors, which in some cases can be half the battle.
If you attempted to pay off your debt without consolidating or going through a not-for-profit credit counselling agency, it would take you a lot longer and potentially cost you thousands more in interest alone to pay off the debt completely. Use the Credit Canada debt calculator to see how much interest you can save by paying off your debt through a Debt Consolidation Program.
Step 3: Create a Detailed Monthly Budget
Once you know the exact monthly payments you'll need to make to get out of debt, you'll need a budget to go along with it. Why? To make sure you have enough money coming in to pay off your debt while still being able to keep up with all of your regular expenses, because paying off your existing credit cards and loans won't do you a lot of good if you continue to build up more debt on the side.
For example, let's say your after-tax income per month is $3,000. Your monthly budget might look something like this:
- $1,200 for rent/mortgage
- $300 for bills
- $300 for food
- $200 for entertainment/eating out
- $444 for savings/retirement
- $556 for debt payments
If you're able to stick to a budget, you'll be able to reallocate all the money going towards the interest on your debt to other areas, such as growing your savings, building an emergency fund, going on a trip without going into debt, or putting money towards a major purchase you want to make. If you're at a loss, don't know where to start, or you just simply hate budgeting, a certified credit counsellor can create a budget for you — for free! And the good news is that if you sign up for a Debt Consolidation Program, you get a budget to go along with it to make sure you can make your monthly payments towards your debt while still covering all of your everyday expenses. Your credit counsellor will also help you set realistic goals so that you learn how to pay off debt in a sustainable way.
Step 4: Follow Your Plan and Enjoy Your New Financial Freedom
Making major changes to your financial life can be difficult, but your credit counsellor will be there to provide valuable support and advice throughout the process. If complications arise along the way, they'll be there to help you get through them so that you can stay on course. By learning how to pay off debt and committing to smart budget practices, you will gain financial freedom for a lifetime.
For more than 50 years, Credit Canada has helped individuals and families from all walks of life escape from debt. We are here to help you take control of your finances. To learn more about how to pay off debt and to learn about our credit counselling and debt consolidation programs, give us a call or send us a message today.