Whether it’s the end of summer vacation or returning to work after the Christmas holidays, it’s also back to reality. You’ll have to pay your debts! There are many ways to pay them back, some more efficient than others. Not paying them back will have very serious consequences.
Here are the consequences of not paying your debts:
- You will be blacklisted by the Consumer Credit Bureau of Canada (CCP)
- You can be taken to court. Your creditor can seize your salary, your furniture, your bank account, your savings, your shares in the stock market, etc…
- For 7 years you will not be able to get a new loan from a private company like Credit2Go.
- You will have a very bad credit history and will not be able to buy a house or a car.
- If you are “missing in action” and your creditor cannot find you, for example if you have moved frequently, a foreclosure judgment may have been filed against you without your knowledge. Check with your courthouse, because the creditor has 10 years to find you and to enforce his right. You will have to pay the total balance including interest and administrative fees, plus legal fees.
- You could be accused of fraud.
Ways to pay your debts
1 – Pay your debts with THE “FORMULA 1” METHOD
This is the fastest and most efficient method because you pay your debts quickly and completely by putting down a lump sum. You will have minimal interest to pay. Make sure, however, that there will be no penalty if you pay off any loan before the term date stipulated in your contract.
2 – THE “ATTACK” METHOD
If you don’t have the funds to pay your debts in full, the “Attack” method is the best one on paper and mathematically to reduce interest costs. When our debts are spread over several platforms, such as personal loans, credit cards, lines of credit, etc., we have to put larger amounts on those with the highest interest rate and pay the minimum amount on the other ones. When the balance of this debt is zero, we move to the next one with the highest rate.
3 – THE “SMALL VICTORIES” APPROACH
This method focuses on emotion rather than on optimizing interest costs. Pay off the lowest balance first and so on. By “clearing” debts one at a time, you will have a sense of accomplishment. The feeling of accomplishment is a source of motivation to keep going and get out of debt! For this reason, it is one of the most effective methods!
4 – THE “LONG HAUL” APPROACH
This unefficient method is curiously the one that people adopt most easily and with the most “acceptance”. It is the military regime! Debts are paid off proportionally, i.e. according to the amount of the balances. For example, if $5,000 is owed on one card and $2,500 on another, people tend to pay $500 monthly on the first and $250 on the second. This is a very bad strategy because it costs more in interest and makes it look like you are making slow, robotic progress on your debt.
5 – Pay your debts with the ” OSTRICH” APPROACH
The worst strategy is to think that your debts will magically disappear and that not paying one or more of your debts will not catch up with you……This is a huge mistake! Reread the first paragraph about the consequences if you don’t pay your debts!
Moral of the story…anyone can find themselves in a critical financial situation but it is imperative to pay your debts. Don’t be afraid to make arrangements with your lenders. They will help you because they would rather get paid than chase you!