Many Canadians have used the recent dip in interest rates to go on a spending spree. Whether this spree involved productive investments such as a home or one’s education, or more discretionary spending this past holiday season (or due to boredom – we all need to spend money sometimes), doesn’t really matter.
For those holding onto large debt balances across a number of accounts, the simplest piece of advice I’ve received in my investing career is to focus on one’s highest interest rate debt first. Typically, for most Canadians, this is credit card debt. Eliminating these debts provides more discretionary cash flow to pay down other debts later.
Of course, making minimum payments on one’s lower-interest debts simultaneously is important. Credit scores matter when it comes time to make a big purchase or refinance one’s property, for example. Having a solid credit score requires making payments on all one’s debts.
However, ensuring one has a solid repayment plan for one’s debts is important. Itemizing how much one can put toward debt each month, and calculate what the repayment schedule would be, is a good way to prioritize debt reduction.
Going a step further and having a budget put in place can help with focusing on how to increase one’s income, or reduce one’s spending (both is great), to allow for more money to go toward debt repayment. Every little bit helps, and starting now is the best way to be successful with such a plan.
Invest wisely, my friends.
