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Strategies to Dig Yourself Out of the Debt Hole
 January 8 2016     Posted by

Debt.  It's something almost everyone will have at some point in their life.  But what happens when your debt begins to get the better of you?  What options are available?  Some simple strategies can help you get your debt out of a seemingly unmanageable situation; it's just a matter of choosing the right one for you. 



One common debt issue is having multiple credit cards but feeling like you're getting nowhere in paying them off, even when you're making payments larger than the minimum.  People tend to get caught up in making sure they pay all their cards off at the same rate, regardless of balance owing or interest rate.  The solution is to prioritize your debt.  


Select the card you want to pay off first and focus your efforts on it.  Keep making the minimum payments on your other cards; you don't want to damage your credit rating by having late or delinquent payments reported on your credit history.  For example, if you have three credit cards and are paying a sum over the minimum payment on all of them, take the extra amount you're paying on the other two, and focus on the one you want to eliminate first.  This should be the one with the highest interest rate. Once it's paid off, refocus on the next, including the amount you'd been paying on the now paid off card.  Doing this will feel slow at first, but will give you a feeling of accomplishment as you pay off each debt.


Another option is to sit down with your bank or credit card provider and discuss lower interest options.  If your rating is still healthy, most banks will switch between different credit cards, such as moving from a cash back card to a lower interest card.  Others will lower your interest rate.  Keep in mind, if you don't ask, the answer is automatically 'no'.


You can also look at debt consolidation loans.  By using your home’s equity, you can consolidate your higher interest rate debt into a well-planned mortgage.  One important strategy is knowing “good debt” from “bad debt”.  Work with an experienced professional in the area!


These can be a little trickier, as by the time most people seek this out as an option their credit rating has taken some damage and getting approved can be difficult.  First off, apply at the institution where the majority of your debt is located.  Financial Institutions are stingy on bringing in outside debt, as it increases the risk to their bottom line.  Secondly, be prepared to close all of your credit cards and credit lines that are being included.  Some lenders will try to provide you with a small credit card for emergency purposes, but this is rare.


Your last option is to declare bankruptcy or to complete a consumer proposal.  A consumer proposal will allow you to retain more assets than a bankruptcy, but both will effectively destroy your credit rating.  If this happens, you will not be able to apply for credit from anyone but a high risk, high interest lender until seven years from the completion of the consumer proposal  or discharge of the bankruptcy.


When dealing with debt there are several solutions.  The key is to recognize when your debt is becoming a problem and take action.  The longer you wait to deal with the problem, the fewer options you will have available to you.  If in doubt, speak to an experienced advisor.  A meeting will cost you nothing but time, and could provide you with some direction as to what is the best option for you.


Your solution could potentially be a combination of all of these strategies.  Sitting down with an advisor will help you determine whether a prioritized payment strategy, restructure of debt, consolidation, or a mix of the three are going to be the best fit for you.  Most importantly, you must act before you get to the point where Bankruptcy becomes your only option.


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