Debt

How to Get Out of Debt in Canada Faster: 8 PROVEN Ways

Debt! The 4-letter word that has become a tool of the 21st-Century slave market is our article for today. Here are 8 proven ways to get out of debt faster.

Your thoughts, time, and treasures are technically not yours for every dollar ($) you owe. You become a custodian.

Do you have a mortgage? You have to work to earn and pay to keep the house. Your time becomes that of your creditors.

The same principle applies to your car loan. Here are some great tips on how to get out of debt in Canada faster than you think.

How to get out of debt in Canada

8 Proven Ways to Get Out of Debt Faster in Canada

Follow the tips below to get out of the debt race faster.

1. Know and WRITE DOWN how much you earn

You need to know how much comes into your hands from every source. If it is easy to do (just your salary).

You need more than one stream of income. But the point here is to know how much you earn and on no occasion spend above that. If you want to increase your earnings, refer to 6 Free Money Hacks to Start Today.

Understanding and documenting your earnings provide a clear picture of your financial resources available for debt repayment. 

By tracking your income and creating a detailed budget, you can allocate a specific portion towards debt repayment. 

This practice helps you stay organized and motivated, ensuring that you prioritize paying off your debts. 

By consistently monitoring your income and writing it down, you can:

  • make more informed financial decisions, 
  • identify potential areas for increased earnings, and
  • strategize how to allocate any extra income toward debt repayment

2. Plug the black hole

In addition to the above, you need to know how much you leave your hand. I recommend if your salary is biweekly, categorize your expenses into biweekly as well (do the same for monthly). They need to match each month. Do not incur further debt.

By taking the time to assess your debt accurately, you gain a clear understanding of the total amount you need to repay. 

This knowledge allows you to create a realistic repayment plan and set achievable goals. 

Knowing the exact figure also enables you to prioritize your debts, such as focusing on high-interest loans first. 

By being aware of the full extent of your debt, you can make informed decisions, explore debt consolidation options, negotiate repayment terms, and take proactive steps towards becoming debt-free sooner.

3. Categorize your credit card/loans by interest rate

According to CNBC, credit card fees raked $104 billion in 2018. Your little dollar here and there is part of the number. Interest and charges are for losers.

It is healthy to prioritize your repayment by percentage APR on your cards.

For example, repay credit cards/loans that charge 29.99% first before 7% interest. Paying by the absolute interest is not a definitive solution, and I’d explain in the next point.

4. Rank your dollar amount interest charges

It is time to look at your credit statements and identify which loan accrues you with more interest charges. I’d repay first a 7% loan that hits me with $150 interest monthly before 19% loan I’m getting charged $35 monthly.

In essence, your $20,000 car loan at 5% with the car dealership is more important than a $100 credit card loan at 19.99%

By taking the time to assess your debt accurately, you gain a clear understanding of the total amount you need to repay. 

This knowledge allows you to create a realistic repayment plan and set achievable goals. 

Knowing the exact figure also enables you to prioritize your debts, such as focusing on high-interest loans first. 

By being aware of the full extent of your debt, you can make informed decisions, explore debt consolidation options, negotiate repayment terms, and take proactive steps towards becoming debt-free sooner.

5. Create your repayment plan

As much as I know, credit card statements come with a calculation that goes like this: if you make the minimum payment, it will take you XYZ length of time (in months/years) to repay your loan.

Going by the same principle, you need to create a repayment strategy to clear off your principal. If you owe $1,000, automate $110 monthly for ten months to clear it. The $10 extra is a buffer for interest accruing during your repayment.

Creating a well-structured repayment plan involves assessing your current financial situation, including your total debt amount, interest rates, and monthly income. 

With this information, you can strategize the most efficient way to allocate your resources toward debt repayment. Prioritize high-interest debts first to minimize interest costs over time.

Determine a realistic monthly payment that fits within your budget, ensuring consistent progress toward reducing your debt. 

Automating payments or using debt consolidation methods may also simplify the process.

By creating a clear repayment plan, you gain control over your debt and can systematically work towards becoming debt-free faster.

6. Trade your debt

I can share a success story from a reader here who I’d call Ryan. Ryan’s car loan was $25,000 at 7% APR, and he walked into the bank for a personal loan at a promotional rate of 2.5%, which he used to pay off the car and halved his interest charges.

This strategy involves exploring options to consolidate or transfer high-interest debts to more favorable terms. 

For instance, you can consider obtaining a low-interest personal loan or opening a balance transfer credit card with a promotional 0% interest period. 

By consolidating multiple debts into a single loan or transferring balances to a lower interest rate, you can reduce the overall cost of borrowing and streamline your repayment process. 

This approach allows you to save money on interest charges and allocate more funds towards paying down the principal amount, helping you become debt-free faster.

7. Lump-sum repayment

One effective strategy to expedite debt repayment in Canada is through lump-sum repayment. 

This approach involves making a significant one-time payment towards your debt. 

By allocating a lump sum of money toward your outstanding debt, you can make a substantial dent in the overall balance. 

It can prove a wise decision to halt savings while you deal with your debts. Your high-interest savings account will earn you at most 1.75% in any big bank. You’d hardly match the interest you are molding while that saving sits still in the bank account.

So, when you get lump sums like a tax refund or annual bonus from an employer, you may want to slap that in the face of your debt. Yes, it is hard but worth it.

This not only reduces the principal amount owed but also decreases the interest that accumulates over time. 

By accelerating your debt repayment with a lump-sum payment, you can save on interest charges and potentially shorten the time it takes to become debt-free, allowing you to regain control of your finances more quickly.

8. Read multiple suggestions. (checked – you just passed it)

No single blogger or financial expert knows it all. Your perspective on life needs to accommodate a variety of information if you want to get out of debt faster.

By seeking out a variety of strategies and advice, you can gain valuable insights and discover techniques that suit your specific financial situation. 

Reading multiple suggestions allows you to explore various debt reduction methods, such as the snowball or avalanche methods, debt consolidation, or negotiating with creditors. 

Additionally, you can learn about government assistance programs, debt management tools, and expert tips for budgeting and saving. 

By educating yourself through multiple sources, you can develop a comprehensive debt repayment plan tailored to your needs, enabling you to get out of debt faster.

Have a question? Reach out to our team at [email protected]

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About John Adebisi

John Adebisi is a CPA, FCCA and MBA holder with a Bachelor's degree in Accounting & Finance. He has over a decade of experience in writing personal and business finance content for audiences across North America, Europe, the UK and Africa. In addition to his writing experience, he also has a strong background in financial research and analysis, giving him a unique perspective of the financial markets. John derives pleasure in helping people make smart financial decisions, and he believes that knowledge and experience can be valuable resources for anyone who wants to learn how to manage their money.

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