Debt

According to NerdWall Inc. ..”the average household with credit card debt has balances totaling $16,425, and the average household with any kind of debt owes $135,924, including mortgages.”

According to the star.com in Canada on Wednesday, March 15, 2017, “Statistics Canada said the amount of household credit market debt rose to 167.3 per cent of adjusted household disposable income in the fourth quarter, up from 166.8 per cent in the third quarter.”

We can all say that we sometimes pay things with our credit cards and pay it off but there are temptations to really want to buy the high priced item and we fall into the trap to keep on buying without thinking about it.  Unfortunately, we can not pay it off easily.  This can cause financial hardships affecting relationship breakdowns, delinquencies, and ultimately bankruptcy which can take a long time to getting back in having your credit rating back up.  I personally think that debt is a disease which can be treated by budgeting skills, limiting the amount of money spent, and focusing more on the needs and decrease the wants.

All said, we can spend and save at the same time; however, at a certain point in debt it will still be hard such as credit cards with huge interest rates.  High interest rates can prevent one from touching the principal on the debt and just keep on paying for the interest only.  Also having debt in different places can cause frustration and hardship.  If I were in that situation I would be stressed and not know where to start paying and how we can ever pay the debt off.  I would have to sit down and plan a budget to see where I am at, what debts I owe and where it is going per week, bi-weekly or month and what I can do to pay the debt once and for all.  This would be a start as it would be a roadmap with a goal.

Once I have my plan and my objectives, I can then look at my options and go through them.

1. Put money towards the debt with the higher interest

If we have debt on multiple credit cards or lines of credit, whichever one that has the higher interest we would more money towards. Then we prioritize the next debt sources to pay.

2. Call the credit card companies for any offers/promotion

Why not call the credit card companies or banks with lines of credit and ask if they have special offers for the interest rate as that is what we need to focus on to be able to pay the debt off quicker.  If there is a special rate and room to move other credit, take advantage of it.  The purpose is to be able to increase the payment; thus, accelerating the debt reduction.  The lower the interest rate that we are able to reduce, the less stress and overthinking as then we can pay off as much principal as we can.  Once we can eliminate debt from a credit card then we can further take advantage with more promotions offered and start to move other credit at the reduced interest rate.  If one credit card or line of credit is offering a low or 0% interest rate for a certain period of time we can use the balance transfer and then accelerate the payment of the other debt source until it eliminated.  The method I am talking about is called debt stacking as we have money to pay off debt from a credit card and once it is eliminated then that payment would be added to another credit card where you are paying a certain minimum amount.  You can also think of it as compounding, hence, the term accelerating the debt repayment.  A method I do is take advantage of a credit card that is free and if they offer a low interest promotion then swap another debt source such as another credit card or line of credit into it.

3. Attend webinars, seminars or workshops

There are many non-profit organizations or people that were in
debt that provide webinars or workshops to provide tips to others on dealing with debt situations.  Any advice, tip and suggestion that is provided take it with heart as it can provide ways not thought of to eliminate debt.  Webinars can be found online or through local public libraries.

4. Contact a credit counsellor

As mentioned above, there are many non-profit organizations who have counsellors that can work with you on finding a starting point in dealing with debt and debt repayments.  Credit counsellors are professions that have helped many with financial issues and know what they are talking about when tackling debt.  Listen to them as they want to help and provide guidance, offer services to make the financial burden disappear and lead to financial stability.

5. Debt Consolidation

Debt Consolidation is by far the best method to think of one place where we can put our debt and focus on that place.  If we have big debts from multiple sources, then debt consolidation would be beneficial as it can lead to paying one amount as compared to multiple amounts.  If the amount payment in a consolidated loan is less than the sum of the amounts from multiple sources, it would make sense to go with the loan.  If one owns a home, a home equity line of credit or second mortgage can be a type of debt consolidation.  Financial institutions can offer loans to consolidate multiple debts but make sure and ask questions.  The less the interest rate, the less the payment amount which can be negotiated.   You also have to be careful when taking debt consolidations as some debt consolidation methods may reduce your credit rating and take multiple years to rebuild your credit worthiness.  There may also be collateral in order to get the debt consolidation approved such as a home or vehicle.  Debt consolidation takes the current credit rating of an individual which tells financial institutions if the individual meets their credit rating qualifications.  The other factor to take is if in the case of a line of credit, the financial institutions include the Federal prime interest rate which can increase depending on economic conditions.

If you have any questions about savings or debt or would like to offer any advice, tips and insight you have gotten over the years (from your personal experiences), please leave a comment below.  I would love to hear all about it!  

4 thoughts on “Debt”

  1. Hey great website. Very informative read. One quick question. If I consolidate all of my debts, should I close all the accounts that were consolidated to keep myself from filling them up again or keep 1-2 open for emergency use?

    1. Hello Michael,

      Yes and No. Close most but not all. Here is the reason why. 1. You want to have one for emergency, reservations (car rentals, hotels need a credit card). 2. Keep in mind that you may or may not get pre-approved if you need a credit card or credit product in the future. By applying for a credit product, you will be doing a credit credit and doing too many of those is detrimental to your credit score. The next thing is to keep your ability to lend reasonable as that has to do with the amount that you borrow. For example, if you have an annual income of $50,000 then you have business having a line of credit for $50, 000. That is not setting yourself up for success. This is my personal knowledge, understanding and opinion of money and debt. Ask yourself what are the cards that give your most important incentives to you. You may have a card that offers rewards for travel, cash back, roadside assistance, points for free groceries or products and whatever it is that is important to you. Five different cards is unnecessary. If you have more questions, further explanation, want to converse, or have more dialog, please ask away.

      Sam

  2. Great article and very informative. I myself have had to do some debt consolidations and I’ve done it a couple different ways. I’ve taken a loan from a financial institution and I’ve also taken a loan from my 401k. One thing I’ve learned is not to cancel all of your credit cards, this hurts your credit score because it takes into consideration the longevity as well as the balances of your credit cards.

    1. Hello Bubba,

      Thank you for your comment. I agree with you with regards to canceling credit cards and I have read a book called Soldier of Finance by Jeff Rose which you can find in my Reviews section under my Resources menu where on page 69-70 of the book he mentions about keeping a certain number of credit cards and if you have unnecessary ones then to not cancel them but just stop using them until they become inactive. If you do cancel them then do it slowly and one at a time. Jeff explains it real well. Yes, closing all your credit cards will definitely hurt your credit score. At least keep credit cards that do benefit you and where you can manage to pay it off in the short term such as ones that give you rewards towards free groceries, saving a couple of cents from participating gas stations, and cash back from purchases. I am collecting testimonials and if you would like to share your debt free journey such as how much you managed to pay down and strategies you used to motivate others, please let me know as I have a testimonials section under my resources menu.
      Sam

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