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Consumer Debt: Stop the Bleeding

One of the most important principles of good financial management is minimizing consumer debt. It’s difficult to invest and grow your money when a chunk of your cash flow is going to interest payments.

If you or a family member is carrying a number of large debt balances (with the exception of a mortgage or investment loan, which can help you increase net worth), consider the following strategies to stop the bleeding:  

Use idle cash –
 If you have liquid deposits in a non-registered savings or chequing account, or a GIC coming due, it typically makes sense to use these funds to pay off the credit balances. It’s unlikely that you’re earning as much on these deposits as you’re paying in interest, particularly after tax is taken into account.

Shop for a new credit card –
 There are many credit card options to choose from. Opt for one that charges a lower interest rate and shift the credit balance over from the more expensive card. 

Apply for a line of credit –
 It’s a good idea to set up a line of credit when your finances and working situation are strong and then carry any debt on this account rather than more expensive credit cards.

Bite the bullet –
 These days, there are two schools of thought for paying down multiple debts. One is to start by paying off the most expensive one. While this is financially the smarter solution, there is also a psychological argument for paying off the smaller debt first, even if the interest rate is lower. The thinking is that you will gain a sense of accomplishment as you eliminate each loan and simplify as you go.

Debt consolidation loan –
 If you are carrying credit balances with a number of financial institutions, you may wish to consolidate all debt at one place so you have a single payment to make. Along with simplifying your finances, you may be able to negotiate a more favourable interest rate.   

Through our network of specialists, our team can shop the market to bring you the best credit rates and terms available to us for your needs.

Once debt is paid off, you can take advantage of the discipline of making loan payments to use for another highly recommended financial principle: making automatic transfers into an investment account to effortlessly build wealth for the future. We can show you how!   

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