Get Out Of Debt By Creating A Debtline

Posted in Debt Help
Posted by Jason Quinney, CIRP - LIT

debt-deadline-updatedIs one of your goals this year to cut down your debt or even get rid of your debt all together? To reach this goal, it’s important that you set a debtline.

A debtline is a deadline that you give yourself to cut down or eliminate your debt within a certain period of time. So if you want to be debt free in one year, three years or five years, you set that time period as your goal (and it can even help to choose a specific day to work toward).

Once you have your debt free goal (your debtline) in place, the next step is to figure out how you are going to get there financially. You need to identify just how much to pay off against each debt every month to achieve your objective.

To help you do this we have created a free and easy to use excel Debt Repayment Worksheet.

Paying It Off on Your Own

One way to achieve your debt free goal may be to pay off your debt in full, with interest, over a specific period of time.

Let’s say that you want to pay off all of your credit card debt within three years. You need to determine how much you have to pay each and every month to achieve this goal and here’s where our worksheet can help. Just input your credit card or other debts, how much you owe and what the interest rate is. Our worksheet will tell you how much you have to pay each month to achieve debt freedom within your debt payoff period. In fact, it will provide comparison payments for repayment plans of one through five years.

For example, if you owe $12,000 in credit card debt, that charges 19% interest, and you want to pay off that debt over three years you will have to pay $440 each month for 36 months to achieve your debt-free deadline. Extend this to five years and your payment drops to $311. Reduce your debtline to 2 years and you have to pay $604 each month.

Professional Help To Reach Your Debtline

For some people however, a plan to repay debts on their own is difficult:

  • It only works if you have the income to pay the debt down and if your debt isn’t too high.
  • If you have multiple creditors and are making payments to all of them, it could get difficult to keep up with all the monthly payments.
  • You can’t continue to rack up new balances. Every month, in addition to your debt freedom payment, you have to be able to pay off any new charges in full.

So what happens if you find out that you can’t afford to pay back your debts on your own within a reasonable timeline? It’s time to look at your debt options for relief and how they compare financially to your original repayment schedule.

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Another way to achieve your debtline is to seek help from a non-profit credit counsellor and try a debt management plan. A debt management plan is done through an agent such as a credit counsellor and allows you to pay 100% of your debt over a period of up to five years. In most debt management plans the interest is lowered or sometimes even eliminated by the creditors so you will be paying just the principal debt and a small fee to the credit counsellors. Once again, our free repayment worksheet provides a comparison of what your payment might be under a possible debt management plan. Just enter your chosen debtline period (any number between one and five years). The worksheet will tell you what your possible payment might be.

If you have a lot of unsecured debt, the best way to achieve a debtline may be to talk to a licensed consumer proposal administrator and offer a consumer proposal to your creditors. A consumer proposal is the only debt settlement program that is administered by someone licensed by the federal government and is a good alternative to bankruptcy. A consumer proposal offers you protection from your creditors while your consumer proposal administrator helps you negotiate a settlement to pay a portion of your debts over a period no longer than five years. The amount that you pay in a consumer proposal has to be fair and reasonable to both you and your creditors and you only pay what you can afford. In a typical consumer proposal you will make one monthly payment over a 60 month period.

Our debt repayment worksheet allows you to compare what your payments might be in a consumer proposal based on your debt profile and your debtline. This is a simple comparison of why a consumer proposal is often the cheapest way to eliminate debt, however, actual payments depend on factors such as your income or if you have equity in your home.

If, after testing out your debtline, you determine that a consumer proposal might make sense for you it’s time to talk to a Licensed Insolvency Trustee to see how a consumer proposal can help eliminate your debt.

At Hoyes, Michalos & Associates we are licensed consumer proposal administrators and have helped thousands of people create realistic debtlines to eliminate their debts.