You’re probably wondering about all your options for getting out of debt. There are many. But, if you’re not sure which is right for you, consider creating a debtline to help you decide.
A debtline is a deadline you give yourself to cut down or eliminate debt within a certain period of time. If you want to be debt free in one, three, or five years, set that time period as your goal.
Once you have your debtline in place, the next step is to figure out how you’ll 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 Debt Off on Your Own
One way to achieve your 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 your credit card debt within three years. You need to determine how much you must pay each month to achieve this goal. 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 tells you how much you must pay each month to achieve debt relief within your debt payoff period. In fact, it will provide comparison payments for repayment plans of one through five years.
Here’s an example to illustrate:
If you owe $12,000 in credit card debt, charging 19% interest, and you want to pay it off over three years, you’ll pay $440 each month for 36 months. 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.
Getting Professional Help To Reach Your Debtline
For some people, however, a plan to repay debt on their own can be challenging. It works only if you have the income to pay the debt down and if the amount isn’t too high.
But, 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. Also, 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.
What happens if you realize you can’t afford to pay down debt on your own and within a reasonable time frame? We’d suggest looking at your options for debt relief to see how they compare financially to your original repayment schedule.
You may find that one way to achieve your debtline is to seek help from a non-profit credit counsellor and trying a debt management plan. A debt management plan allows you to pay 100% of your debt over a period of up to five years. In most of these plans, the interest is lowered or sometimes even eliminated by the creditors. So, you would be paying just the principal amount and a small fee to the credit counsellor.
Our free repayment worksheet provides a comparison of what your payment might be under a debt management plan. Just enter your chosen debtline period (between 1 and 5 years) and the worksheet shows what your payments might be.
But, if you have a lot of unsecured debt, the best way to meet your debtline may be to speak to a local Licensed Insolvency Trustee (LIT). An LIT can help you prepare a consumer proposal to your creditors. A consumer proposal allows you to get out of debt by repaying a portion of it to your creditors in no more than 5 years. It’s also the main alternative to bankruptcy and you get to keep all your assets.
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 like income or equity in your home.
If, after determining the right debtline, you decide a consumer proposal is best, consider meeting with a Licensed Insolvency Trustee. He or she will take the time to explain all your options for getting out of debt and answer any questions you have about consumer proposals.
Setting Some Monthly Goals
One way to target debt reduction, is to have a plan of activities that you can tackle bit by bit. Here are some monthly tips that you can view as an opportunity to improve your financial responsibility.
- January Overall budget review. Do you notice any leaks in your income? If so, come up with a plan to stop it. Is now the time to reduce your budget for buying lunch? Take some steps the night before to get organized and pack a lunch. Maybe it’s time to add up how much that morning coffee is really costing you.
- February Look at investing more money into your RRSP before the February deadline. Try and complete a mock tax return sometime in February. This will give you a good oversight on what you owe and how you can better your refund.
- March Break up the winter woes with a vacation. If you plan for this at the same time of the year, each year, it gives you a good idea of how much you have to save each month. If you can find $100 a week to save from November 1st to March 1st, you’ll have enough for a pretty great March getaway.
- April Tax Returns. Review the February RRSP goals you recently made to make sure you at least break even with the tax man. Try and find ways to increase your refund amount. Make sure you check the CRA website for any tax changes that affect the current year.
- May Build your credit. Get a free copy of your credit report once a year. It’s always beneficial to ensure all of the information on your report is correct and avoid any nasty surprises. If you’re planning any big purchases this year, see if there’s anything that needs to be fixed or updated prior to letting a lender look at your report.
- June It seems like everyone and their sister has a June birthday. Summer BBQs are starting and the backyard get togethers are ramping up in full force. If you know you’re going to have five birthday parties throughout the course of June, plan your finances accordingly. Is there a gift you can order online in advance? Can you make something for the party instead of a gift (make sure to add that into your grocery budget for the month).
- July Is the half year mark. This is the time to pat yourself on the back for your progress so far, and keep pushing forward. Revisit your monthly spending on items like your phone, internet and cable. See if there’s any room to minimize those costs with your provider, or see if it’s time for a new provider altogether.
- August This may sound strange, but August is the perfect time to start planning for Christmas. You can be shopping little bits at a time from August until December, or you can put money aside each week to save for the December spending. No matter which way you do it, the important part is that you’re prepared and not putting everything on credit for your future self to worry about.
- September Plan for your retirement. It’s like back to school for your finances. Think about your long-term plan and see if there’s anything that you can tweak to help you retire earlier. The steps you take today, help you threefold in the future.
- October Get ahead on your financial knowledge. See if there is anything new in finance this year. Are there new TFSA rules, or new mortgage rules? If you’re considering buying a home in the near future, these are things you’ll need to look into.
- November Just shred it. It is great to start the New Year with a clean house and no paper clutter. With the ability to get bills and pay online this challenge is getting easier every year. If you have bills or paperwork that typically come in the mail, scan it and save it.
- December Evaluate your past year. Look at what you missed and plan for the next 12 months.