Skip to main content
Ratehub logo
Ratehub logo

5 Hacks to help you get out of debt

Let’s talk about your least favourite four-letter word—debt. Specifically, let’s talk about how to get out of it (and stay out of it!) for good.

Don’t worry, we’re not going to tell you to increase your income or lower your spending. Assuming your income is what it is and you’ve already made a budget, here are five practical ways to pay off your debt more efficiently.

Rank and pay off your debt by interest rate

First things first, you need to look at all your debts so you can see exactly what you owe, the interest rates, what the minimum payments are and when they’re due. Map this out as a monthly repayment schedule and rank your debts by interest rate.

Your monthly budget tells you how much money you can put towards debt and your payment schedule shows you how much you owe. Make the minimum payments on all of your debts, and if you have extra cash in your budget put it towards your highest-interest debt first.

Pay off revolving loans first

Let’s say you have $5,000 left on your student loan and $5,000 on your credit card. You always want to pay off your credit card first because your credit card  — like a line of credit — is a revolvingloan (it also likely has a higher interest rate than your student loan). Once you pay off that $5,000 balance you have access to $5,000 worth of credit again—revolving loans can be used repeatedly.

If you use your cash to pay off your student loan (which is not a revolving loan) you can’t borrow that money back again. Your access to that credit is gone because non-revolving loans can only be used once. By paying down revolving loans first you give yourself the flexibility of having access to that credit again if something comes up.

Build an emergency fund

While we applaud your enthusiasm for wanting to throw every spare dollar towards your debt, make sure you’re also putting a little money aside each month into an emergency fund.

Unexpected stuff can and will continue to come up and being able to cover those expenses with savings will feel a lot better than having to put it on credit. You need cash for when life happens because life will happen.

Consolidate your debt and lower your interest rates

If you’ve got a handful of different debts (a couple credit cards and a line of credit) you may be able to consolidate them to your lowest-interest credit source.

Let’s say you have $5,000 on two credit cards and $10,000 on a line of credit. If you have a decent credit score you may be able to extend your line of credit to $20,000 and transfer the balances of your two cards to your line of credit (or one of your credit provides might offer you a personal loan). Then you’re paying less interest overall and only having to keep track of one monthly payment. These companies want to get paid back so they’re often willing to work with you to make things easier.

If you’re unable to make the minimum monthly payments or your credit score is too low to consolidate, talking to an insolvency trustee is your next step. 

Have a financial plan

Debt can feel all-consuming and that’s where having a financial plan comes in. A plan helps you look beyond your debt, stay motivated to pay it off, and focus on the big picture. Sure, you’ll be throwing a chunk of your paycheque towards debt for the next few years, but after that, you’ll be able to put it towards big goals like buying a house or investing for your retirement. When you see the big picture you’ll notice you’re not as far behind as you think.

A plan also gives you the peace of mind that you’re protected against any downside. Things like short-term disability insurance will make sure that if something happens and you can’t work, you’ll still be able to cover your living expenses and won’t go further into debt.

Having a plan really is the best way to get out of debt, stay out of debt, and build the future you want!