Did you recently add yet one more loan to your pile of debt? If you are adding to your credit card balance every month to cover clothes, food, and other common expenses, you are circling the financial drain. How do you get out from under this crushing scenario? You need to eliminate the worst loans first.
Chop Up All but One Credit Card
The first thing that you need to do is to stop accruing debt. Your credit card should be used only for emergencies. Throw all but one of them away and start spending cash or using a debit card for your daily and monthly expenditures. If you don’t have the cash, don’t buy it.
Look at Those Interest Rates
Why do you want to avoid credit cards? You are likely paying an interest rate between 8% and 25%. For every dollar that you put on the card, you are being charged at least eight cents for the privilege of using the card. The next month, the interest is calculated on the original dollar and its accrued interest. You need to place credit cards and short term loans like title loans or personal loans at the top of your debt eradication plan.
Did you know that if you only pay the minimum payment on your card, it can take up to 30 years to pay off a minimal purchase? Even an extra $10 can eat away at the balance and lower your monthly fees.
Leave the Mortgage for Last
While the average Canadian has a staggering $200,000 mortgage on the books, this giant number is not the debt you need to worry about. Mortgages and student loans are considered good debt by the credit agencies. Why? If you sold your home, you would still have to make a similar monthly rent payment, and none of that money would go toward owning a piece of property. Keep your mortgage and student loans while focusing on clearing the credit cards, short term loans, and car loans.
Select a Short Term Goal to Reinforce Success
Your bank and credit reporting agencies like to see a total debt load of less than 35% of your take home pay. That is your long term target. While your ultimate goal is to clear all the toxic loans, putting an equal amount on each card can feel like you are paddling but not gaining any ground. Consider paying the minimum on all of your debts except the smallest one. Pile all your extra cash into that debt. In short order, you will have paid off an entire debt, and that is one giant step toward financial stability.Once you are free of your toxic debt, it will take time to build up your investment portfolio and start some serious savings for the future. Check out the available GIC rates and select a secure certificate that will start paying you for using your money. Now that is success!