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The Experts Speak - Handling debt
Today we have so many different levels of debt. I mean, when people talk about debt,
what are you really talking about?
Are you talking about student loan debt, are you talking about mortgage debt, credit card debt?
What kind of debt? Retail card debt, which I actually separate from credit card debt
because we're talking about 30% interest rate?
What people need to do if they're in debt is actually take a look at their debt, like
lay it all out from the lowest interest rate up to the highest interest rate.
And it seems to be common sense, you pay your highest interest rate debt first, but what
I find is that I think it's partly guilt that people tend to sort of spread their money
over all their debt and as a result they kind of nibble away at it but they never really reduce it.
So one of my recommendations, in fact my primary recommendation, is if you have multiple debt,
beyond mortgage and beyond student loans, if you have multiple layers of debt:
line it all up in terms of lowest interest rate through to highest interest rate, then
pay the minimum on all the lowest interest rate debt.
Focus then everything else on the highest interest rate debt.
And what you see, two things happen, number one: you see that highest interest rate debt
start to decline quicker, and that's very satisfying; and that's the second thing, is you get satisfaction.
A lot of Canadians feel overwhelmed by debt and they don't see themselves making any progress,
so this is one way to make progress with that debt.
The other thing of course, and the thing that a lot of other people go to first and what
we used to go to is consolidation loans.
Now of course those are much much harder to get, those consolidation loans, because credit
is tight and even though the recession is supposedly over, it's still difficult for
people, especially if you don't have an excellent credit rating, to get a consolidated debt.
However, if you can, obviously that's the first way to go.
And once you've consolidated your debt, hopefully into a lower interest rate pile, then once
you devote all of your excess money to that, like, really for a year or two, put aside
RRSP contributions, and that's really hard to do.
Even contributions to RESPs, tax free savings accounts are great, but put it all aside,
all savings aside for a year or two and really focus on that big pile of debt.
When you start to see it decline, then your interest costs will decline markedly and also
you'll have this great satisfaction of being in control.
Consumer Protection Ontario thanks Alison Griffiths for sharing her advice on this important subject matter. For more information visit us at: ontario.ca/ConsumerProtection