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If you have multiple debts, you may be unsure which ones to tackle first or the best way to pay them off. We’ll first show you how to calculate how much personal debt you owe, then look at proven strategies for paying off that debt.
How to calculate your debt
When it comes to paying off debt, most people want to know the best and fastest way to get rid of the debt. There are several 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 pay (if you use Credit Canada’s debt calculator, you can enter up to five debts at a time). Enter how much you can afford each month to pay off your debt. The calculator then estimates how long it will take to get out of debt.
Using the calculator can also help you with budgeting when creating 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; This does not take into account any fees associated with certain repayment methods, such as debt consolidation.
3 Strategies for Paying Off Debt
Instead of making irregular payments on various debts, consider one of these three strategies:
1. Avalanche method
The avalanche method requires you to make the minimum payments on all of your debts and then apply the remaining funds to the debt with the highest interest rate. When the debt is paid off, pay off the debt at the next higher interest rate, and so on. This method can save you the most money over time when your highest-interest-rate debt is sizeable.
2. Snowball method
Paying off the smallest debts first and then working your way up to the larger ones is called the snowball method. It can help boost motivation as whole debts are eliminated. However, this approach can be more expensive overall, as low balances take precedence over high interest rates.
