20 Ways to Reduce Your Debts

Our money journeys and financial lives may look different…

…but the one thing we all have in common is that we have been in debt or are currently in debt. And if you happen to be one of the lucky souls who has never experienced debt (you probably wouldn’t be reading this right now), I guarantee you know someone who has. We NEED debt to build wealth and create our financial dreams, but not all debt is created equal. Most people find themselves wrapped up in the bad kind – credit cards, lines of credit, or personal loans. Bad debt is debt used to purchase depreciating assets – assets that lose value the minute you buy them – like a dinner at a restaurant, clothes, trips and even your car. Good debt is debt used to purchase appreciating assets like a home, investing in a viable business and even a student loan which will allow you to increase your earning potential in the future.  

If you find yourself struggling to manage your debts, here are several ways to tackle them and begin the journey to becoming debt free:

1. Confront your debts

When you find yourself struggling with a huge debt load the easiest thing to do is to hide. Most people don’t even know how much debt they actually owe or the interest rates on their debts. If you are serious about becoming debt free, the first thing you need to know is how much debt you must tackle to achieve your goal. Write down all your debts and the interest rates for each debt. Now you can begin to work through them.

2. Evaluate the money blocks that created this mess

Becoming debt free and staying debt free is going to require a change in your current money habits. To create real change, you must be honest with yourself about the limiting thoughts and beliefs that caused your debts. What led to your over-spending? Was it driven by emotional pain or anger? A need to feel comforted or to portray a certain lifestyle for others? If you do not identify your triggers, you will find yourself reverting to the same habits and behaviours that caused your debt. As you begin this new journey, continue to ask yourself this question each time you are making a financial decision: “What would debt-free me do?” This will help you to make decisions (especially spending ones) that align with the debt free life you wish to achieve.

3. Set a debt free target date

Most of the time people feel overwhelmed by their debts and believe that it will be impossible to ever pay them off. This mindset keeps them stuck in a cycle of not taking any action. How do you know that it is impossible if you have never calculated what is possible for you? Set a debt free target date and then calculate the amount you will need to pay towards your debts each month to reach this goal. If you are serious about attaining this, review your monthly expenses and adjust your expenses so that you have enough money to pay your new monthly debt payment.

4. Start with the debt with the highest interest rate

This is the debt that is costing you the most. The faster you can get rid of it the more money you will have available to put towards your other debts or your savings goals. Plan to put as much as you can towards your highest interest debt and pay just over the minimums on all of your other debts. Continue this process until all your debts are paid off. This will allow you to get out of debt faster and pay less interest over time.

5. Don’t fall for the new and shiny offers

If your focus is to get out of debt, do not fall for those ‘You have qualified for a limit increase!’ offers. These offers are just the banks way to tempt you into more debt. There is no need for an increase if you are focusing on the decrease. Also, do not fall for any new credit card offers even if they try to entice you with 25,000 bonus points or $300 cash back. Remain committed to your debt-free goal and do not accept anything that is going to lead to increased debt.  

6. Take advantage of balance transfer offers

Credit card companies will sometimes provide a balance transfer offer. This allows you to transfer the balance from one credit card to another credit card with a promotional interest rate that is usually at 0% or extremely low. This is a great way to reduce your interest and get out of debt faster. To make the most of this offer, transfer the balance from your highest interest credit card. It is important to be aware of how long the promotional interest rate will be in effect and, what the interest rate will be after the promotional period ends, in the event you do not pay off the balance by that time. Sometimes, the interest rate after the promotion can be extremely high (greater than 20%). You want to make sure you can pay off the balance before that time, so that you do not incur higher interest later on.

7. Consider a consolidation loan

A consolidation loan allows you to take all your debts and roll them into one single debt (ie. loan) at a lower interest rate. This eliminates having to pay off those high interest credit cards and allows you to focus on one single debt payment each month. This is a great way to get out of debt faster and to free up some of your monthly cash flow.

8. Request a lower interest credit card

If your current credit card company offers a lower interest credit card, ask if you can switch to this card instead of holding your balance on the higher interest card. Sometimes, these lower interest cards can come with an annual fee, but it might be worth it. You will have to do the math. For instance, let’s say you have a balance of $10,000 on a credit card with a 19% interest rate. That amounts to $1,900 in interest charges a year. If your credit card company offers a 14% credit card, a balance of $10,000 on this card would amount to $1,400 in interest a year. If the annual fee for this card is $150, you would still be saving money by moving your balance to the lower interest card.

9. Create a budget and stick to it

Think of a budget as your Money Blueprint – it tells you where each dollar should go to ensure you achieve your financial goals. Having a budget will help to stop any over-spending. If you stick to your budget, you are guaranteed to have money each month to pay towards your debts. If you can come in under budget, you can then put the extra money towards your debts to pay them off even faster!

10. Be rewarded for your spending

Even though your focus is on becoming debt-free you must still spend money for the necessities in life. Take it a step further and ensure every dollar you spend is rewarded so that you can use these rewards to put towards your debts. Open an everyday account that rewards you for every dollar you spend and allows you to redeem points for your typical monthly purchases like groceries, etc. Redeem your points to reduce your grocery bill and then take the extra money you saved in the grocery budget and put it towards your debts. This is an easy way to take what you normally do (ie. spend) and allow your dollars to work more towards your debts.

11. Focus on your net worth

Saving has little value if you keep piling up the debt. Just because you have a heathy savings or income does not mean you can keep increasing your debt. This will eventually catch up to you, really quick. Do not just look at the balance in your savings or investment accounts and allow this to be a reason to celebrate. Instead, look at your net worth as this is a good indicator of your overall financial health. Make a habit of checking your net worth each quarter and ensure your worth is increasing.

12. Know where your money is going

Having a budget is one thing, but tracking your spending is where the truth lies. If you do not have a pulse on where your money is going, it’s very easy to end up in more debt. Create weekly money dates to track your spending and compare your spending against your budget. This will help to ensure you have money left at the end of the month to put towards your debts and avoids the trap of over-spending and going back into more debt.

13. Increase your income

One way to get out of debt faster is to increase your income. This does not mean you need to go looking for a new job, unless you really want to. If you can find ways to bring in an extra hundred or thousand dollars each month it will help you to achieve your debt free goal faster. Sell items you don’t need for quick cash, rent out an extra room in your home through Airbnb, take on an easy part time gig like shopping for groceries through Instacart or delivering food through Uber Eats. Before you decide which avenue to take, determine the extra amount you want to earn each month and how much time would be required to reach that goal. The purpose here is not to work yourself to the bone as that can lead to burnout and then unnecessary “retail therapy.” Make sure you find the right balance.

14. Leave your cards at home

If you have not yet curbed your spending habits and you find it very tempting to buy whenever you go shopping, it might be wise to leave your credit cards at home. Only travel with your debit card or cash so that you do not spend money you don’t have.

15. Set up automatic debt payments

Do not leave making your debt payments to chance. The easiest and fastest way to become debt free is to put your debt repayment plan on autopilot. Once you know how much you can put towards your debts each month, set up automatic debt payments and schedule them to go out the day after you are paid, so that you know the money will be in your account. You can rest easy knowing that your plan is in action, and you will quickly see your debt balances reduced.

16. Review your credit report

You do not want to go through all the work to become debt free, apply for a new loan or mortgage and find there is something on your credit report that is blocking all of your hard efforts. It is always best to review your credit report every few months to make sure all of the details on your report are correct. You have the right to dispute any incorrect information on your report that may be affecting your credit score.

17. Put any money you were planning to spend towards your debts

We’ve all had times where we expected to pay for something but received a pleasant surprise, instead. For instance, let’s say you buy a pair of shoes and find that they are 50% off. Instead of going and buying a second pair, take the money you just saved and put it towards your debts. The same principle applies if you are treated to a coffee or go out with a friend, and they pick up the bill. You had planned to spend that money anyway, so instead of spending it on something else, pay it forward towards your debts.

18. Put any unexpected income towards your debts

If you receive a tax refund, bonus at work or maybe even some cash for your birthday, instead of feeling like you just won the lottery and going on a shopping spree, put this money towards your debts. This will help you to get out of debt much faster.

19. Round up for debt

Some accounts allow you to round up to the nearest dollar on each of your purchases and automatically put this money into a savings account. If your account has this feature, use it. At the end of each month or every quarter, take the money you have saved and put this towards your debts.

20. Use loyalty programs

Enrol in loyalty programs that are offered at stores where you shop on a regular basis. This is an opportunity to take advantage of the rewards that are offered for spending your money at that store. Allow your rewards to accumulate and, when you redeem them, take the money that you saved and put it towards your debts.

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