How to Manage your Debt and Repay Loans Faster 

The best place to start is to take note of what you owe by creating a list of debts. For each debt, note the total amount you owe, the minimum monthly payment, and the interest rate. This list might include student loans, unpaid utility bills, credit cards, mortgages, etc.

The first step to take control of your finances is by making a budget. A budget can show you how much money you have, where it is coming from, and where it needs to go.

A basic budget requires three simple steps:

1. Figure out where your money is going

   Evaluating your income and expenses can help you better keep track of where your money is going. Every dollar you spend can affect your overall budget.

2. Know the difference between needs and wants

   Knowing the difference between a need— something that is essential, versus a want – something that you’d like but isn’t necessarily needed, is key to making a smart budget.

3. Determine your financial goals

   Identify your short-term and long-term goals and make saving for those goals part of your budget.

Making a budget can help you pay your debt faster. Cutting expenses that are not necessary will help you have more money available to repay your debts.

Once you’ve determined all your current debts, it’s time to create a plan to pay them off. The type and amount of debt you owe will determine your strategy to pay them off. When choosing a timeframe to pay off your debt, chose something that is reasonable and affordable. If you pick a timeframe that is too long, you may lose focus and you’ll end up paying more money in interest over time. If you choose a time frame that is too short, you may be scrambling to keep up with payments and start to feel it’s hopeless to continue with your plan.

Once you have a plan and timeframe in mind, you must determine what debt is best to pay off first. This can be based on the type of debt and the amount of debt.

Debt with High-Interest Rates

Debts with the highest interest rate should be paid off first. This will help you be debt-free sooner. By making minimum payments on all your debts, you can use any extra money to pay down the debt with the highest interest rate. Another important note is that if interest rates rise, your monthly payment may also increase if you have a variable rate, which is another reason high-interest rate debt should be paid off first.

Debts with Low Balances

You may decide it’s easier to start with the debt that has the lowest balance. Feeling the accomplishment of paying off debt sooner can keep you motivated to keep going with your goal of being debt-free. This option may cost you more over time if you have one or more debts with high-interest rates.

Paying Back Your Family or Friends

If your family or friends gave you a personal loan, talk to them about setting up a plan to pay back the money you owe. You can make and commit to a repayment schedule that works for both you and the person who lent you money. To show that you are committed to repaying them, consider setting up automatic money transfers to stick to the payment plan. You can also choose to write post-dated cheques that can be cashed as they come due.

Close Accounts on Debts You’ve Paid off

Once you have paid off a debt, consider closing that account. You should only keep what you can manage responsibly and what you need. Keep in mind that maintaining some older accounts open can be beneficial, as your credit score is partly based on how long you’ve had credit (also known as credit history). Keeping one or two older credit accounts open helps maintain your long-term credit history.

Work With Your Financial Institution and Creditors

Contact your creditors (the companies you owe money) to discuss your financial situation. They want to get paid and may be willing to work with you to help you pay your debt off. They may offer a lower interest rate on your debt, extend the payments over a longer period to reduce monthly payments, or consolidate your debts into one loan.

An option you may want to consider is to consolidate your debts. This is when you combine multiple debts into a single loan, so you only have to make one monthly payment instead of paying each debt separately. A consolidation loan may be helpful to you if:

• It has a lower interest rate than the debt you are consolidating.

• It has a lower monthly payment than all your other debts combined. This way, you can put the extra money you saved into paying down your debt more quickly.

• You avoid taking on any more debt while you are paying the consolidated loan.

If you are considering a consolidation loan, ask your financial institution what debts you can group together.

Consolidation Loan Eligibility

Depending on your situation, your financial institution may be able to provide you with a consolidation loan. If you have an acceptable credit score and enough income to make the monthly payment, you may be eligible. Financial institutions may offer you a different interest rate depending on the type of product you choose. You may shop around to find the best loan for your budget, though do keep in mind that applying for loans with different lenders within a short time frame may lower your credit score.

Managing debt is a process and with the right plan, you can become debt-free. To figure out what debt management strategy would be right for you, reach out to an advisor who can help.