Debt sucks. I mean, don't get me wrong. Going into debt can be fun. It's that trip to Maui or the new laptop you need for school. It can be one too many trips to the bar with your friends and another little black dress (and matching shoes, of course). Spending all of that money is terribly fun, so putting it onto a credit card or dipping into a line of credit can practically make sense when your desires outweigh that sinking feeling in the back of your head. Debt sucks, however, when you're trying to get out of it.
Sure the night at the bar was only $40, but you put it on a credit card that you can't pay off fully. So that $40, in reality, sits there on your credit card, slowly acquiring more and more debt for you to pay off. You're making more than the minimum payments every month, but never quite enough to bring your balance back to zero, so the interest charges are starting to pile up. You'd pay off more, but there's the other credit card that you have to make payments to and your rent isn't going to pay itself either, so suddenly you're stuck, and stressed, and that $40 will sit there, charging you a few cents every single day for about a year, until you finally get a cash windfall and pay it off, and celebrate, by going out to the bar with some friends… as after all, it'll only be about $40… So here are 4 ways that you can quit the cycle and kill your debt.
The Sucky Way – Use Reward Money to Pay Down Debt
Being in debt sucks, and getting out of debt can suck. One of the suckiest ways of getting out of debt is using your “fun” money to pay off your loans. It doesn't feel good to get a birthday card in the mail with a small cheque attached and think to yourself that you'll be able to pay off 10% of your loan balance with the money, but you are the one that put yourself into debt, so you can be the one to get yourself out. Christmas, tax refunds, and work bonuses are usually causes for celebration and treating yourself, but not if you want to get out of debt. Instead, take those small amounts of money and apply it to your large debts, and slowly you'll work your way back out of the hole you dug yourself into
The Hard Work Way – Overtime and Second Jobs to Get Out of Debt
If you want to keep your reward money for yourself, you'll have to find a different way of getting out of debt. One of the quickest ways to get the money to pay off debt is by filling up all that free time you have. You know, when you're not working your 40 hour a week full time position.
The slightly easier way to do this is by simply working more hours. Depending on your job and employer, getting more hours might be easy and it might be very difficult. Ask co-workers if they want a day off and try to pick up their shift, or see if you can add 2 hours to the end of each day. Adding hours (especially if you're getting paid time and a half) may bump you up to the next tax bracket, but the higher paychecks will allow you to dump some of that cash against your debt.
If that isn't an option, consider getting a second job. If you have skills that people need, you can find a way to make some cash on the side. Advertise on craigslist, hang out at Home Depot on Saturdays, steal a paper route from a little neighbour kid. Do what you need to do in order to make some extra cash – at least in the short term – and put all the extra cash against your debt.
The Short Term / Long Term Way – Cash In your Savings to Eliminate Debt
If you're too proud to use your birthday cash and too lazy to get a second job, there is one way that you can be lazy and still get your debt paid off. I only suggest this for people who have already corrected the reason why they got into debt in the first place (ie, spending less than they are making), as otherwise it will just be a temporary band-aid and will hurt you more in the long term.
If you have any savings – bonds, stocks, even RRSPs, you can consider cashing them out and putting them against your debt. Now, before you even consider doing this, please ensure that the savings rates you are enjoying are not close to what your are paying in interest against your debts. If they are even remotely close, consider leaving them alone – it's not worth it. If they aren't even remotely close – talk to your bank and see if you can get a lower rate by moving your debt around AND consider cashing in and paying off.
If you had to choose, which way would you pay off your debt?