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Debt and Your Options
It’s no secret that consumer debt is commonplace in today’s world. Nearly everyone has a credit card,
student loans, mortgage, car loan, etc., but how much is too much?
According to a study done by MNP Ltd. in December 2018, 31% of Canadians say they don’t make
enough to cover their bills and debt payments and nearly half of Canadians are within $200 of
insolvency (bankruptcy). *CTVnews.ca*
When you can’t keep up with your payments, creditors start harassing you, and monthly bills are too
much to handle, it may be time to start exploring your options.
There are a handful of common solutions to deal with personal debt.
The first two focus on paying off your debts without increasing your monthly payments.
The second two are more extreme and should be treated as a last resort as they will affect your credit
score for several years.
The first two are referred to as Debt Stacking and Debt Snowballing. They are similar where as they both
involve applying the payment of a paid off debt onto the next debt in the list until all debts are paid and
yet differ in the way they arrange the list of creditors.
Debt Stacking (aka Debt Avalanche)
In the Debt Stacking method, your debts are arranged by interest rate from highest to lowest. Your debt
with the highest interest rate is called your Target Account. You continue making the same payments
you were making before but once the Target Account is paid off, instead of banking the money saved,
you apply that payment to the next debt in your list, which then becomes the next Target Account. You continue adding the payment from the debt higher up in your list to the next one as they are paid off.
For example, you’re making minimum payments on four debts at 19%, 14%, 10% and 6%. You make
your payments as you had been until the debt at 19% is paid off. Say your monthly payment...
student loans, mortgage, car loan, etc., but how much is too much?
According to a study done by MNP Ltd. in December 2018, 31% of Canadians say they don’t make
enough to cover their bills and debt payments and nearly half of Canadians are within $200 of
insolvency (bankruptcy). *CTVnews.ca*
When you can’t keep up with your payments, creditors start harassing you, and monthly bills are too
much to handle, it may be time to start exploring your options.
There are a handful of common solutions to deal with personal debt.
The first two focus on paying off your debts without increasing your monthly payments.
The second two are more extreme and should be treated as a last resort as they will affect your credit
score for several years.
The first two are referred to as Debt Stacking and Debt Snowballing. They are similar where as they both
involve applying the payment of a paid off debt onto the next debt in the list until all debts are paid and
yet differ in the way they arrange the list of creditors.
Debt Stacking (aka Debt Avalanche)
In the Debt Stacking method, your debts are arranged by interest rate from highest to lowest. Your debt
with the highest interest rate is called your Target Account. You continue making the same payments
you were making before but once the Target Account is paid off, instead of banking the money saved,
you apply that payment to the next debt in your list, which then becomes the next Target Account. You continue adding the payment from the debt higher up in your list to the next one as they are paid off.
For example, you’re making minimum payments on four debts at 19%, 14%, 10% and 6%. You make
your payments as you had been until the debt at 19% is paid off. Say your monthly payment...
