Real Talk: Serious debt

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Death. Divorce. Job loss. Sometimes tough stuff happens.Unfortunately, these not-so-great milestones often come with a financialimpact. So, what do you do if you have to get a divorce? Or if a loved onesuddenly passes away? Or if you find yourself with more debt than iscomfortable? In our series, Real Talk forthe Tough Stuff, we’ll tackle some of these situations head-on with thehonest financial advice you need to get through and get on with life. 

Next up, Real Talkfor the Tough Stuff: The Serious Debt Edition.

For most of us, debt is something that comes along withbeing an adult. And when managed properly, debt can actually be necessary, likein the case of a car loan or a mortgage. But it’s a fine line between debt thatis manageable and debt that is out of control. 

We’re all guilty of pulling out the plastic for things it’sprobably not intended for. But when this happens often, that’s the beginning ofa problem. And when it becomes a habit, that’s when things can get downrightscary. 

We spoke with Lisa Purchase from Leading Edge Credit Unionfor some honest financial advice about how to get out of serious credit card debt. 

Step one? Cut up ‘em up.

Get rid of the temptation and break the habit of puttingthings on your credit card by getting rid of them. If possible, keep one credit card with a low limit (think$500-$1000) for emergencies. But that’s only if you are able to reserve it onlyfor absolute emergencies—a bigger stereo for your car or a new pair of shoesdoesn’t count.

Now it’s time to develop a strategy to pay off your debt.“The first thing I always ask my clients is whether they have any equity,” saysPurchase. If you own your own home or anything else of significant value, itmight be possible to put your debt into equity. The benefit of this is a lowerinterest rate and often more manageable payments, which ultimately will giveyou a break when it comes to paying off those balances quicker.

Interest rates tend to be very high on credit cards—often wellinto the 20 per cent plus range—but, if your credit is good, a loan throughyour financial institution might also give you a lower interest rate. Withlower interest rates, the money you’re able to pay on your loan will actuallybe going toward the principle, not just the interest. 

Another strategy is to figure out which of your credit cardshas the highest interest rate. Focus on paying off that card first by onlypaying the minimum amount on everything else, and putting all your extraresources into that card. Once that one is paid off, roll the funds you were usingtoward those payments into the next card and keep going until your balances arecleared.

And speaking of being cleared—let us be clear here—it’s easyto say how this is all going to happen and probably doesn’t take that much timeto read. But getting out of debt isn’t always a quick and simple process. Thiscould take years, not to mention some likely adjustments to your savings and spending habits. That’s why it’s important to find a financial expert youtrust who you can work with to find the solution that works for you and yourlife as it changes.

 “I always say: keep an open mind. Be flexibleand open to options. This is only a period of time in your life, you’ll getthrough it,” says Purchase. “Ultimately what it’s all about is taking care ofyour credit. If you take care of your credit, your credit will take care ofyou.