Got credit card debt? How about personal loans, home equity lines of credit, or auto loans? If you do, the cost of servicing your debt may increase in 2018. Bank of Canada has already increased interest rates to 1.25 in January, up from 1 percent. This might not seem like a huge jump until you realize that it is a 25 percent increase and follows hikes that took place in July and September of 2017.
Additional increases in 2018 are currently on hold until there’s a clearer idea of what will come of NAFTA negotiations. Even if they don’t come, you might already be seeing the effect of the recent increases on your debt.
There is no better time than ever to get yourself out of debt. This is especially true if you have variable interest rates on your loans and credit cards since the amount that you’ll pay in interest will have gone up since last month’s rate hike. A higher interest rate can increase your monthly payments which will mean less of your dollars will go towards paying off the principal debt and will instead be used to service your debt.
Other than giving your budget a buzzcut, what can you do to pay back your debt quicker? Here are 4 ways you can begin lowering and locking in interest rates before another increase.
1. Sign up for a 0% introductory interest balance transfer credit card
There are many credit cards that offer special introductory deals. For instance, you may be able to receive 0 percent interest for 6 months to 1 year. You can potentially transfer balances that you’re carrying from other credit cards with high rates onto these cards and save on interest for a while.
However, it is important to know that many of these credit card companies charge a balance transfer fee of 2 to 3 percent just to transfer your balance. A balance transfer may be a great way to pay off credit card debt but be careful as your interest rates will revert to high rates after the introductory period is over.
2. Lock in low rates by refinancing
If you have variable interest rate loans, you’ve likely seen your rates increase recently. Instead of being at the mercy of Bank of Canada’s increases, consider refinancing your auto loan, mortgage, or personal loans at a low fixed interest rate.
By doing this, you will lock in a low rate, and you won’t have to worry about your rates going up. Just read your new loan contract carefully and try to avoid loans that charge lots of fees like origination fees or pre-payment fees.
3. Get a consolidation loan
Rather than transfer your credit card debt to a 0 percent interest credit card or refinance your loans, another option is to get a debt consolidation loan. A debt consolidation loan will allow you to roll all of your current debt into a single new loan at a great low rate.
Make sure to choose a loan with a fixed interest rate so you won’t be at the mercy of rate increases. Also, avoid loans with large origination or pre-payment fees.
4. Consider debt settlement
Do you have so much debt that you’re overwhelmed and uncertain about how you will pay it back? You may want to consider debt settlement. A debt settlement program will allow you to get some debt relief. A Certified Debt Settlement Counselor will contact your creditors and negotiate a settlement on your behalf.
Your principal balance may reduce by as much as 40 to 60 percent and may reduce your interest rates and monthly payments as well. This program will allow you to pay back your debt and get out of debt quickly. It is important to know that debt settlement will impact your credit score.
5. Other tips for becoming debt free
Once you’ve reduced your interest rates, the next step is to try to put more money toward your debt repayment. While you can accomplish that by being thrifty and cutting back on things like eating out, cable, groceries, entertainment, trips, clothing purchases and other non-essentials, you can also take on more work.
Offer to work overtime at your job or take up a side hustle to make extra cash. For example, become an Uber driver, rent out an extra room or home on Airbnb, sell homemade goods on Etsy, or simply use your talents to freelance in your spare time. Get creative and have fun with it. Explore how you can make money doing something you enjoy.
Another great way to make extra cash to put towards your debt is to sell things you don’t need on Craigslist or other sites. Why keep all those old video games or that furniture you no longer use and have in storage? Sell it and pay off your debt before interest rates go up.
No matter how you find the extra cash to put towards your debt, remember that the sooner you get out of debt the less you’ll pay on interest overall and the more you’ll protect yourself against future interest rate increases.