How to Get Out of Debt on Your Own Timeline

Are you ready to start the long climb out of debt? Becoming debt-free is one of the best decisions you can make in your life. It may be a struggle now, but you’re setting yourself up for lasting success. When you become debt-free, your money becomes free. You can spend, save, invest, donate. You can finally start putting it toward your dreams.

The question everyone in debt asks is: how long will it take you to get debt free and how do you do it? That depends on how much you owe, how much you earn, and what your living expenses are like. While it may feel like many of those things are out of your control, it also depends on your plan. What steps can you take to get out of debt on your timeline?

1. Create a Budget

Track all of the money you spend in a single month. You can also go back through credit card statements, debit transactions, and receipts to see what you spent in the last full month, including rent/mortgage, bills, groceries, transportation, dining out, entertainment, shopping, etc.

As a general rule of thumb, financial experts say you should have a 50/30/20 budget:

• 50% on needs (housing, groceries, utilities, car payments)
• 30% on wants (shopping, dining, hobbies)
• 20% on savings (or debt repayments)

When you have large amounts of debt, these numbers may not make sense. If you really want to save aggressively, a bare bones budget might be tough to stick to, but reducing your expenses to the bare minimum gives you more funds to repay debt.

2. Set a Date for Debt Freedom and Work Backward

The longer you take to pay back creditors, the more you pay in interest. That means you could be pushing back savings goals like a retirement fund or a new home. When you set your date for debt freedom, think about when you want to start achieving those goals. How soon do you want to start saving? How much money can you save by getting out of debt faster?

Now there might be a hitch: you owe too much money to meet your goal. You might find that your monthly budget plus the monthly debt payments you need to make are higher than your take-home pay.

Take the difference between your budget and your take-home to pay. That’s how much you can put toward your debts if all goes well (no surprise expenses or lost income). With a debt calculator, you can find out how long it will take you to get debt-free making that payment. If it’s too long, there are other actions you can take to speed up the process.

3. Other Ways Out of Debt

You can’t reach your goal on your own and now you have to find another way to do it. If you continue to make minimum payments, you will pay more in interest and you have to delay your other financial goals. Here are some of the things you can do instead:

Take Out a Debt Consolidation Loan

If you have good credit and lots of high-interest debt, a debt consolidation loan can help you pay it all back faster. Here’s how it works: a bank issues a new loan at a relatively low-interest rate and you use the funds to clear your credit card balances and other unsecured debts. The new arrangement should provide you with more favorable repayment terms.

Enroll in a Debt Consolidation Program

For borrowers who won’t qualify for a debt consolidation loan, there are Debt Consolidation Programs. Rather than getting a new, low-interest loan, in a Debt Consolidation Program, you get the interest rates on your existing debts reduced, sometimes to zero. A Credit Counsellor negotiates with each of your unsecured creditors individually to provide some form of relief. They can also help you out with creating a budget, getting a secured credit card, and stopping collection calls.

The Value of Professional Advice

You have a goal and you need professional advice on how to reach it. Certified Credit Counsellors offer financial expertise and options that wouldn’t be available to you otherwise. The value of professional advice is getting out of debt sooner and successfully reaching your goals.