Couple managing budget together in kitchen

Your Guide to Paying off Debt: How to Pay off Debt Fast

Couple managing budget together in kitchen

Financial burden is a common problem many individuals face, and debt can significantly contribute to the issue. According to a Fraser Institute 2023 report, The Growing Debt Burden for Canadians, “the debt burden for families across Canada has been growing substantially for more than a decade.” The report suggests Canada has a growing debt problem and recommends that federal and provincial governments develop long-term plans to address the ongoing crisis.

Although government assistance may eventually loosen financial stress for some, there is no uncertainty about when this may happen. Unfortunately, financial stress can affect one’s physical and mental health, so finding a balance and paying down debt when possible is essential. If you’re struggling with personal debt, it’s vital that you take proactive measures to pay off debt fast for financial relief. 

At GoDay, our goal is to help borrowers achieve financial freedom and live a stress-free life with the help of our flexible online payday loans that can be an effective tool to get out of debt. You can take many additional steps to handle debt by discovering the power of debt consolidation and negotiation techniques that can lower interest rates and reduce your overall debt burden. Discover different methods to pay off debt fast and rewrite your financial story. 

Warning Signs of Too Much Debt

One of the first steps to pay off debt faster is learning when you have a lot of debt. Look out for the following indicators to help you determine if you have a significant amount of debt. 

Debt-to-Income Ratio

Debt-to-Income (DTI) ratio is a financial metric used to assess an individual’s or a household’s ability to manage debt repayments in relation to their overall income. It compares the total monthly debt payments to the gross monthly income and is expressed as a percentage.

You can calculate your debt-to-income ratio by dividing your total monthly debt payments by your monthly income. The formula for the DTI ratio is as follows: 

DTI Ratio = (Total Monthly Debt Payments / Gross Monthly Income) x 100

If a large portion of your income goes towards debt repayment, it suggests you may have excessive debt.

Monthly Debt Payments

Consider the amount of money you pay monthly towards different kinds of debt, such as credit cards, loans, and mortgages. If these payments consume a significant portion of your income, it indicates a heavy debt burden.

Minimum Payments

If you can only make minimum payments on your credit cards or loans, it may be a sign that you have accumulated substantial debt. Minimum payments prolong the time it takes to pay off the debt and can result in increased interest charges.

Credit Utilization

Check your credit card balances and compare them to your credit limits. If you consistently utilize a large percentage of your available credit, it suggests you are heavily reliant on credit and may have accumulated considerable debt.

Difficulty Meeting Financial Obligations

If you find it challenging to cover your basic living expenses, save for the future, or make timely payments on your debts, it could indicate excessive debt. It’s essential to identify if you have bad money habits that result in debt to find relief. 

Collection Calls and Notices

Frequent calls from debt collectors or receiving collection notices indicate that you have fallen behind on your payments and may be struggling with a significant amount of debt.

Stress and Anxiety

Debt can take a toll on your mental well-being. According to Very Well Mind, debt influences mental health and can significantly increase the likelihood of depressive symptoms.

If you feel overwhelmed, constantly worried about money, or experience stress related to your financial situation, it may indicate that your debt load is substantial.

How to Pay Off Debt Fast

Paying off debt fast requires discipline and commitment, but with the right approach, you will be one step closer to financial freedom. Consider implementing the following methods to get out of debt. 

Assess Your Debt

Before you can tackle your debt and how to get out of debt quickly, you must clearly understand your financial obligations. List all your debts, including credit cards, loans, and other outstanding balances. Note the total amount owed, interest rates, and minimum monthly payments. This exercise will give you a complete picture of your debt and help you prioritize your repayment strategy.

Create a Budget

Once you figure out your debt, you can pay debt faster by learning how to budget and evaluate your income and expenses. To learn how to budget to pay off debt, create a comprehensive budget that outlines your monthly income and all your costs, including rent/mortgage, utilities, groceries, transportation, and discretionary spending. Identify areas where you can cut back to free up extra money for debt repayment. Remember, every dollar counts!

Set Clear Goals 

Setting clear goals is crucial to stay motivated throughout your debt repayment journey and pay down debt fast. Determine how much debt you want to pay off and set a realistic timeline for achieving your target. Having specific goals and using budgeting tools will help you stay focused and track your progress along the way. Celebrate small victories as you reach milestones – it’s all part of the journey!

Choose a Debt Repayment Strategy 

There are several approaches to get out of debt, but two popular methods are the debt snowball and debt avalanche methods. 

Debt snowball method: This involves paying off debts from smallest to largest balance, regardless of interest rates. This approach provides a psychological boost as you eliminate smaller debts quickly. 

Debt avalanche method: This prioritizes debts with the highest interest rates first and helps you pay down debt to reduce your financial burden quickly. This method can save you more money in the long run. Choose the strategy that aligns best with your personality and financial goals.

Negotiate Lower Interest Rates 

High-interest rates can significantly slow down your debt repayment progress. One of the best ways to pay off debt faster involves taking the initiative to negotiate lower interest rates with your creditors. Contact your credit card companies or lenders and inquire about any options for reducing your interest rates. Explain your situation honestly, emphasizing your commitment to paying off the debt. A lower interest rate can make a significant difference in helping you pay off debt faster. 

Take a Short-Term Loan

Although it’s important not to spiral into too much debt, taking a loan to pay off debt can be helpful for many people. At GoDay, we aim to help you achieve financial freedom by offering a transparent and streamlined borrowing process. We can provide a cash advance online based on your unique needs. 

A key benefit of using a GoDay loan to pay off debt is that you can customize your loan based on your needs. You can choose the loan amount to get out of debt, get pre-approved in seconds, and receive the funds within hours. 

When applying for a loan to pay off debt fast, take the time to understand the difference between pre-approved vs. pre selected during the application process. Understanding the difference between these two terms will help you make informed decisions when you want to learn how to pay down debt fast. 

Get Familiar with Debt Management Regulations 

The best way to pay off debt is to become familiar with debt management regulations in your location. For example, Ontario’s Collection and Debt Settlement Services Act offers clients a “bill of rights.” Understanding your rights as a client can help you avoid excessive fees or other problems that may arise when paying down debt. 

Withdraw Funds from Your RRSP Account

Consider using your Registered Retirement Savings Plan (RRSP) to pay off debt faster. This process involves withdrawing funds from your RRSP account to repay outstanding debts that you may have.

When using RRSP to pay off debt, remember that withdrawals from your RRSP are generally considered taxable income. The amount you withdraw will be added to your annual income and taxed accordingly. It’s essential to consider the tax implications and potential withholding taxes when planning to withdraw from your RRSP.

Increase Your Income

Boosting your income is an effective way to pay off debt faster. Consider taking up a part-time or freelancing gig, especially if your current job allows flexible hours. Alternatively, explore ways to monetize your skills or hobbies. You could offer services as a freelancer, tutor, or consultant. The additional income can be dedicated entirely to paying off your debt.

Minimize Expenses

Reducing expenses is as important as increasing your income when you want to embrace the best ways to pay off debt faster. Look for areas where you can reduce discretionary spending, as each expense can add up. Consider making minor changes to your lifestyle to reduce costs, as this can help you save money when paying debt. For example, meal planning is a great way to control your expenses and reduce costs associated with eating out. Other great ways to save money involve cancelling unnecessary subscriptions or downsizing your living arrangements. Every dollar you save can be allocated towards paying down debt. 

Stay Motivated and Seek Support 

Paying off debt requires persistence, and staying motivated throughout the process is crucial. To pay debt and keep track of your success, surround yourself with positive influences and seek support from friends and family who can provide encouragement.