1. Pay at least the minimum on each debt
Each month, pay off as much of your debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition as you can. At least pay the minimum you owe on each loanLoan An agreement to borrow money for a set period of time. You agree to pay back the full amount, plus interest, by a set date.+ read full definition. This will protect your credit rating. If you can afford to pay more, pay down the loan with the highest interest rateInterest rate A fee you pay to borrow money. Or, a fee you get to lend it. Often shown as an annual percentage rate, like 5%. Examples: If you get a loan, you pay interest. If you buy a GIC, the bank pays you interest. It uses your money until you need it back.+ read full definition first. As you pay off each loan, start paying more on the next debt in line.
2. Ask for a lower interest rate
Ask your lenderLender Any person or organization that lends money.+ read full definition for a lower rate. If the first person you talk to can’t help you, ask to speak to their supervisor. If you have a good record of paying on time, they may be willing to reduce your interest rate to keep your business.
3. Stop using your credit cards
You don’t have to cancel your credit cards or cut them up. But put them away somewhere safe and don’t use them to make any more purchases until you’ve cleared your debt.
4. Consider a consolidation loan
You may be able to reduce your interest charges by grouping all your debts into 1 low-interest loan. This works best if you stop accumulating debt while you pay off the consolidation loanConsolidation loan A loan you take to pay off many other debts. Often a way to get a lower interest rate or a set interest rate that won’t change.+ read full definition. Two common optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition are a home-equityEquity Two meanings: 1. The part of investment you have paid for in cash. Example: you may have equity in a home or a business. 2. Investments in the stock market. Example: equity mutual funds.+ read full definition loan or line of creditLine of credit An account that you set up with a financial institution (often a bank) to borrow money. It lets you borrow what you need, when you need it, up to a certain limit.+ read full definition. The interest rate will be lower, but keep in mind that you could lose your house if you don’t make the payments.
Find out how long it could take to pay off your credit cards and other debt with this debt calculator.
5. Trim your budget
Could you cut back on things like eating out and other optional purchases? Trimming your budget will free up more money to pay down on your debt.
6. Talk to a professional
If you can’t figure out a way to reduce your debt, consider talking to a financial plannerFinancial planner An individual who looks at your financial situation and builds a complete plan to help you reach your goals. The process may cover: financial planning, risk management, investment planning, tax planning, retirement planning, and estate planning.+ read full definition or credit counsellor. Non-profit credit agencies help people work through their debt problems. They can help you develop a plan, reduce your interest costs and get out of debt over time.
There may be times when repayment is impossible. In those cases, bankruptcy may be the only way out. But there are many drawbacks. For example, your credit record will contain this information for 6 years or more. Consider bankruptcy a last resort. And be sure to get expert advice.
To compare interest rates and costs, use this credit card payment calculator.