If you’re carrying multiple debts, you might be unsure which to tackle first, or what is the best way to repay it. First, we’ll show you how to calculate the amount of personal debt you have, and then we’ll look at proven strategies for paying it down.
How to calculate your debt
When it comes to paying off debt, most people want to know their best or quickest route to getting it done. There are a few ways to get there, and using an online debt calculator can help you decide what to do.
Here’s how it works: For each bill, enter the balance (the amount you owe) and the interest rate you’re paying (if you use Credit Canada’s debt calculator, you can enter up to five debts at once). Enter how much you can afford to put towards your debt each month. The calculator then estimates how long it will take you to become debt-free.
Using the calculator can also help you budget as you put together a repayment plan. It shows you how increasing or decreasing your monthly payment will affect your financial goals.
A debt calculator can only provide an estimate based on current information; it does not take into account any fees you may have with certain repayment methods, such as debt consolidation.
3 debt repayment strategies
Instead of making irregular payments towards various debts, consider one of these three strategies:
1. Avalanche method
The avalanche method involves making the minimum payments on all your debts, then putting any remaining funds towards the debt with the highest interest rate. When it’s paid off, you tackle the debt with the next highest interest rate, and so on. This method could save you the most money over time, if your highest-interest debt is sizeable.
2. Snowball method
Paying off the smallest debt first, then working your way up to the larger ones, is known as the snowball method. It can help build motivation as entire debts are eliminated. However, this approach can end up being more expensive overall, as you are prioritizing low balances over high interest rates.
