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Settled into Canada? Here’s how to pay off your debt

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KEY TAKEAWAYS

✔ Becoming debt-free is possible. A little planning and perseverance can get you on the path to financial stability.  

✔ There are three proven options for paying down debt: snowflake, snowball, and avalanche. They can help you become debt-free in a way that works for you. 

✔ ​​​​​​​Don’t be afraid to ask lenders for solutions. Whether it’s reducing your interest rate, increasing the payment amount or frequency, it all adds up.

Whether it’s to buy items to furnish your home or to cover an unexpected expense, it’s common to borrow money when you move to a new country. And it’s just as common to start carrying balances on one or more credit cards. If you took on some debt and now you want to pay it all off, here are three ways to do it. 

Option 1: Pay off each debt a bit at a time

Often called the “Snowflake Method”, this involves chipping away at each debt using every dollar available. For each debt, set up automatic payments. In addition, set up payments so that, at any time, you can make a lump-sum payment. Each debt will automatically get the minimum payment, and you will also have the option of making extra payments. With each extra payment, the snowflakes slowly become a blizzard and the balances on your debts start to decrease.

Option 2: Pay off debt one at a time

Let’s look at Mohammed’s situation. Over the years he’s run up some debt but he’s committed to wiping it out. Here’s what he owes:

In this option, called the “Snowball Method”, Mohammed lists all his debts from smallest to largest and then makes a plan to pay as much as possible on the smallest debt, while making the minimum payments on the others. Once the smallest debt is paid off, he has more money each month. 

Mohammed’s power to pay gathers momentum like a snowball rolling down a hill as he continues to increase the amount of each payment towards his smallest debt. In this case, he would start with his credit card, then the car loan and finally his student loan.  

Option 3: Pay the debt with the highest interest rate first

Another way to quickly pay off debt is to tackle the debts in order from the highest to the lowest interest rate, called the “Avalanche Method”. In this case, Mohammed would address each of his debts in the following order:

  • $5,000 in credit card debt at 19% interest
  • $15,000 student loans at 5.9% interest
  • $10,000 car loan at 5.2% interest

This method requires Mohammed to tackle the higher interest rate credit card before the lower interest rate car loan. The key to the Avalanche Method is that it minimizes the amount of interest  Mohammed will pay over time, and by paying less interest, he can apply those savings to other debts which will help  him pay off his debt faster.

Bust Your High Interest Rates
Paying down high-interest debt can often feel like taking two steps forward and one step back. This is because the interest that you are charged is so high that it can add hundreds of dollars per month to your loan balance. A good way to speed up your debt repayment on high-interest debt is to try lowering your interest rate. 

Whichever method you choose, you’ve taken the first step to becoming debt-free.  At easyfinancial, we’re here to help you get on the path to a better tomorrow. Ask us how a debt consolidation loan could also help you borrow to pay off your debts. . 

Disclaimer: This content is intended for informational purposes only and does not constitute financial advice on any subject matter.