How to Become Debt Free | Rate City

How to Become Debt Free

Being in debt is about as fun as being stranded in the desert with no water. No one wants to be there, and sometimes it can feel as if you’re helpless.

One of the most prominent types of debt is mortgage debt. In fact, more and more Canadians are finding themselves wracked with a debt they can’t seem to shake off.

You may want to know how to become debt free, but it’s not as easy as snapping your fingers and hoping for the best. But, with a few small (and some large) tweaks, you can come out on the other side debt free.

The Specter of Mortgage Debt

Mortgage debt has hit record highs recently in Canada which means you are more likely to be in debt now than ever before.

Mortgages on their own are a type of debt. That is to say, once you borrow that money, you’re automatically in debt. Of course, this debt is meant to be manageable, and, in many cases, homeowners can progress through the life of the loan with no late payments along the way. Mortgage debt is also considered 'good debt'.

But, in some cases, a combination of high prices and high interest rates can leave some consumers underwater. Once you get into that situation, other debts may start piling up as well. These debts can include:

  • Payday loans
  • Car loans
  • Unpaid taxes
  • Credit card balances
  • Line of credit balances
  • Overdue utility payments
  • Personal loans
  • Student loans

So, how do you pay off your debt? There are a lot of ways to go about this.

Getting Ready to Pay off Debt

If you have a variety of debts from different accounts, then you may be in the mindset that you don’t want to pay attention to them at all. In the real world, your debts still exist whether or not you look at them. You should start out by listing all of your debts with the following information:

  • Minimum payment for each pay period
  • The remaining balance of the deb
  • The interest rate

This at least organizes your debt, and it’s a great way to visualize how much you actually owe. Looking at a mountain of debt from many different sources can be overwhelming, but, remember, you don’t have to pay these off all at the same time in the same time period.

In fact, it’s better to pay off the debts with the highest interest rates first. This way, you avoid racking up high interest penalties over the period of the payment schedule.

In fact, it’s better to pay off the debts with the highest interest rates first. This way, you avoid racking up high interest penalties over the period of the payment schedule.

How to Pay Down Debt Fast

Although you might think it unwise, the best way to pay down debts is to go directly to your creditors. They can help negotiate a deal for any of the following:

  • ​Debt consolidation
  • Lower interest rates
  • A longer loan period

Consolidating your debt essentially allows you to combine multiple debts into one payment, which is easier to keep track of and possibly offers lower payments in the long run. Lower interest rates, of course, reduce the amount of interest you’ll have to pay over the course of the loan. And, a longer loan period can reduce your monthly payments and ease pressure on you. Debt consolidators can even take all of your debts from disparate creditors and turn them into one simple debt repayment.

Drastic Measures

Some people can pay off their debts by working 100 hours a week at three different jobs. But, not everyone has that luxury. If you want to get your head above water, you may have to take some drastic measures. Some of these include:

  • ​Selling your home
  • Taking out a debt consolidation loan on your home’s equity
  • Working with an insolvency trustee

Selling your home may work for you, but if mortgage debt is among your list of debts, then you may not get much money in return. A debt consolidation loan using your home’s equity can give you money to pay off existing debts, but it becomes another debt in and of itself. An insolvency trustee, on the other hand, can help you consolidate your loans and even reduce your payments so that you only have to pay a portion of the original fee.

There’s no singular answer for how to pay down your debt. But, if you want to be debt free, then you have to be proactive.

What you should do now

If you would like us to negotiate the lowest interest rate for your mortgage, apply for a quick approval.

If you are serious about learning everything involved when buying a home, visit our "Homebuyer Zone " page where you can read and download valuable checklists and resources.

If you have questions, contact us for more information.

Sikander Brar

As a Licensed Mortgage Professional with TMG The Mortgage Group, I provide unbiased advice on how to get the best interest rate and mortgage options for your home. Contact me at (780) 880-8880 for more information.