Strategies to pay off credit card debt.

If you have multiple credit cards with balances owed, you might be wondering how to prioritize repayment to get out of debt. There are a number of debt repayment strategies you can follow on your path to debt freedom. Which strategy works best for you is a matter of personal preference. Once you have reviewed your monthly budget and determined how much money you can safely commit toward debt repayment, you can choose from one of the following strategies.

Debt Snowball method - you would focus on the debt with the lowest balance owing. You would make minimum payments on all your other debts and use the remainder of your funds for debt repayment to tackle your debt with the lowest balance first. Mathematically, this method will not maximize interest savings, however, the idea behind this method is that by focusing on your smallest debt first, after you pay it off, you will get an adrenaline boost from your "quick" win and stay motivated to continue attacking your debt in order of lowest balance owing first, working your way up to highest balance owed.

Debt Avalanche Method - you would focus on your debt with the highest interest rate first; regardless of balance owed. You would make minimum payments on all other debt and use the remainder of your debt repayment funds to tackle the debt with the highest interest rate first. Mathematically, this method will maximize interest savings over the life of your repayment strategy. If your debt with the highest interest rate is also your largest debt, you must be careful not to lose motivation by choosing this strategy as it will take some time before you can shift focus to another debt.

Debt Blizzard Method - this method involves a combination of the Snowball and Avalanche method. First, you would focus on your debt with the lowest balance first to get the adrenaline boost to stay motivated with your debt repayment plan and once the smallest debt is paid off, you would then focus on debt in priority of highest interest rate and work your way down.

Debt Consolidation - under this strategy, you would use funds from a consolidation loan or mortgage refinance to pay off multiple debts leaving you with one new consolidation loan or mortgage balance to focus on. Any monthly cash-flow saved by combining multiple debts with multiple payments into one debt with one payment, could be used to accelerate payments towards the new consolidation loan or newly refinanced mortgage.  If the rate of interest being charged on the consolidation loan is high (10% or higher) or involves placing a second mortgage on your property, you might want to explore other options for debt relief before proceeding.  High interest rates on consolidation loans or second mortgages will lead to high payments and before proceeding, you will want to ensure this decision will not jeopardize long term financial security and your ability to meet other important financial goals.

If you find yourself struggling to keep up with basic necessities, let alone debt repayment, or have been denied attempts to consolidate, you might need to consider a formal method of debt relief such as a Consumer Proposal or Bankruptcy.
If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options. Every financial situation is unique and viable options can differ from person to person.  A conversation free of judgment and cost, is the first step to determine options for debt that make sense for you.  For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.