Are you feeling overwhelmed with debt? Worried about how much you are
spending on interest each month? Lowering the amount of debt you carry can
significantly improve your credit profile, reduce loan rates and can save you a lot in interest payments. It just takes a few easy steps and a little dedication to take control of your debt.
1. Assess your current situation
Collect all your account, loan and credit information and go over the records
with a fine tooth comb.
Write down the monthly payment, debt amount, interest rate and term of
each debt on a sheet of paper. Next, write down your total monthly income
and list your estimated monthly expenses.
Estimate your assets such as home equity, your savings, value of your car etc.
Order your Credit Profile and Credit Score online to get a baseline for tracking
your improvements. Visit www.consumerequifax.ca or call 1-800-465-7166.s
2. Prepare a budget
Calculate your monthly spending and find a way to reduce your expenses so
that you are saving 10% of your income each month. Small economies can
mean huge savings when set aside each month. For example, cutting back on
one lunch out per week can save up to $25 – $50 per month.
Apply these savings toward paying off your debts. Use the following
“accelerator margin” formula to decide what to pay first:
A) Create a list of all your debts.
• Place the highest interest account at the top of your list.
B) Each month make the current minimum payment on each debt.
• Except debt No. 1 to which you apply about 10% of your monthly
• Repeat until debt No. 1 is paid.
C) When the first debt is paid repeat the process by paying the minimum
monthly payment on all bills except the No. 2 debt.
• Pay the 10% amount plus the amount you previously paid for
debt No. 1 and 2.
• Continue until debt No. 2. is paid.
D) Begin eliminating debt No. 3 with your 10% savings and the amount you owed on former .
3. Negotiate and consolidate
While you are working on reducing those balances with the “accelerator
margin” schedule, try lowering the interest rates on some of the highest
Call your creditors and negotiate for a rate reduction or consider moving your
balances to less expensive credit cards (this may cause a slight drop in your
credit score if you open a new credit account).
Also, take this opportunity to see if you have any account balances above
50% of the available line of credit. Having high balances can harm your
credit score; you can help this by transferring some of the debts to
After taking control of your credit card and small loan debts, look at your
major loans. Would it make sense to refinance your mortgage or auto loan?
Reducing your interest rate by a few points can potentially save you hundreds
Talk with your lender about a home equity loan; you can apply the amount
you pull out toward reducing your high interest debts.
5. Create a Payment Plan and stick to it
Create a payment calendar with the due dates and the payment amounts you just calculated.
Sign up for automatic bill payment through your bank or register for online
payments to keep you on schedule.
Track improvements in your credit profile by registering for a credit
Keep an emergency fund so that you do not fall back on credit when things
Freeze all credit cards so you are less tempted to use them.
Set goals for reducing your debts and don’t forget to celebrate when you
reach a major debt-reduction milestone!