The first step to manage your personal debt is to make a complete list of everything you owe as follows:

ABC visa           $5,000.00           29.9% annual interest           $200.00 minimum monthly payment

Add up the total debt and the minimum monthly payments and add that amount to your budget as a monthly expense.

Arrange to pay the monthly payments by pre-authorized payment to ensure the amount is withdrawn on time every month.

If you have excess funds available in your budget, develop a strategy to pay down your debt faster.

There are a couple of theories in paying down debt – one is paying the lowest balances first to minimize the number of creditors.  A second theory is paying the highest interest-bearing debt first to minimize the total interest you will have to pay on all of your debt.  I am a fan of the second theory to minimize the total interest and to pay off your total debt quicker.

Another alternative is to reach out to your bank to see if you qualify for a consolidation loan to pay off all of your debts and then only have one monthly payment at an interest rate that is likely considerably lower than a 29% retail credit card.  Do not borrow to make minimum payments on your debt as a payday loan can carry an annual interest rate of over 400%.

As you pay down your debt in full:

  • Freeze your credit card to deter you from impulse purchases.
  • Keep the majority of your funds in a bank account that you can not access with a debit card.
  • Save your change and any cash gifts and put towards your highest interest-bearing debt.
  • Focus on your “needs” as opposed to “wants.”
  • Contact service providers (cell phone, cable, etc.) to see if you can reduce the monthly fee to free up funds to pay towards your debt, and
  • Contact your creditors to see if your interest rate can be reduced.

If your strategy to pay off your unsecured debt takes longer than 5 years or you are unable to make a plan to pay down your debt, reach out to a nonprofit credit counselling agency or a Licensed Insolvency Trustee to discuss a debt management program, bankruptcy or consumer proposal.

By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)