Real Talk for the Tough Stuff: Serious Debt

November 06, 2017

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

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

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

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

We spoke with Lisa Purchase from Leading Edge Credit Union for 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 putting things 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 only for absolute emergencies—a bigger stereo for your car or a new pair of shoes doesn’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,” says Purchase. If you own your own home or anything else of significant value, it might be possible to put your debt into equity. The benefit of this is a lower interest rate and often more manageable payments, which ultimately will give you a break when it comes to paying off those balances quicker.

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

Another strategy is to figure out which of your credit cards has the highest interest rate. Focus on paying off that card first by only paying the minimum amount on everything else, and putting all your extra resources into that card. Once that one is paid off, roll the funds you were using toward those payments into the next card and keep going until your balances are cleared.

And speaking of being cleared—let us be clear here—it’s easy to say how this is all going to happen and probably doesn’t take that much time to read. But getting out of debt isn’t always a quick and simple process. This could 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 you trust who you can work with to find the solution that works for you and your life as it changes.

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