Three proven ways to crush your debt in the new year

Debt reduction tactics all boil down to one principle — efficiency. And, the most efficient way to crush debt is to pay it off as quickly as possible at the lowest possible rate.

Motivated to become debt-free? Tackle your debt with these efficient strategies:

Consolidate your balances at a lower rate

Consolidation is the best way to eliminate debt. Problem is, unless you correct the underlying debt-accumulation behaviours, you’ll repeatedly consolidate every few years and never get ahead financially. It’s essential that as you pay off today’s consolidated debts, you work to understand how to break free from bad spending patterns so that you never need to consolidate again.

The most popular consolidation methods are:

• consolidation loans, either through the bank or an online marketplace lender

• a home equity line of credit (HELOC) or, as a last resort, refinancing a mortgage, which can be extremely costly if there are break penalties.

• a balance transfer to a credit card with a promotional rate, which means you get a special low rate for a limited period of time like six months. This is a less popular method as the low rate usually doesn’t last long enough to fully pay off the balance.

Before committing to any of these options, review the interest rates and compare the payment terms: how much the monthly or bi-weekly payments will be and the time it will take to become completely debt free. Obviously, the lowest rate at a payment amount that you can afford is best.

What if you don’t qualify for a consolidation loan?

Lending policies differ among financial institutions, but they all have one thing in common: they won’t give you a consolidation loan if you’re unlikely to pay it back (because you can’t afford the payments or if there’s a history of bankruptcy or consumer proposals).

If this is you, the debt reduction strategy you’ll need to follow is to first call each lender and negotiate a better rate and then focus on paying off the highest interest balance first, and then move on to the next highest interest rate, and so on. Whatever you do, don’t miss making the minimum payments as that will negatively impact your credit score.

If you simply can’t keep up, you need to speak to an accredited credit counsellor at a non-profit credit counselling firm.

Amp up your payments

In either scenario, the easiest way to accelerate the debt reduction process is to pay just a little bit extra. This doesn’t need to be a huge amount — even $20 a week will make a difference. And if you happen to come into a little extra money, perhaps you’ve sold something on Kijiji or received a small bonus from work, put that money on your debt.

I get it. Talking about debt during the holidays is no fun. But not having a plan to pay it off efficiently in the New Year is worse. So if financial wellness is one of your goals for 2020, get ready to deal with your debts.