Page 17 - News On 7 May 2024
P. 17

THREE STRATEGIES TO HELP YOU PAY DOWN DEBT
                         THIS ARTICLE WAS WRITTEN BY EDWARD JONES FOR USE BY YOUR LOCAL EDWARD JONES FINANCIAL ADVISOR.
                         SUBMITTED BY SCOTT FOSTER, FINANCIAL ADVISOR, EDWARD JONES  317 DECLAIR ROAD, MADOC, ON K0K 2K0






     Living with debt can be stressful, especially during high-inflationary periods where it can be more difficult to find extra
     money to put toward debt repayment. The FP Canada 2023 Financial Stress Index tells us that 40% of Canadians report
     that money is their greatest source of stress, and 38% of Canadians are tackling that stress by paying down debt.
     Debt repayment example
     Consider this example of an individual with debt. In this example, let's assume all their monthly essentials are looked
     after (rent/mortgage, groceries, utilities, insurance, etc.) and they have $1,200 remaining to allocate to five debts.
     After making the minimum payments of $765, how should they allocate the remaining $435?
                                                               There are three primary methods to tackling debt:
                                                               1. The snowball method: This method focuses on paying off
                                                               the smallest debt first. The goal is to reduce the number of
                                                               creditors  and  to  provide  the  debt  payer  with  a  sense  of
                                                               accomplishment that will help keep them motivated. Like a
                                                               snowball, the effects of each payment are small at first, but
                                                               as they pay off debt and eliminate creditors, they can then
                                                               allocate the savings to the next smallest debt, which
     compounds the impact. Using this method, they would make all minimum payments then pay down the Line of Credit
     (LoC). After the second month, the LoC would be eliminated, and the minimum payment of $10 could be added to the
     $435, increasing the remaining amount paid towards debt each month to $445. They would then work on paying down
     Credit Card 1.
     2. The avalanche method: This method aims to reduce the amount of interest paid and therefore increase the amount of
     debt payment that goes towards principal. With this method, they would make all minimum payments and allocate the
     remaining $435 towards Credit Card 2, as this debt carries the highest interest rate. Once Credit Card 2 is paid off, they
     would take the $435 and the $75 saved from the card's minimum payment and allocate this to Credit Card 1. You can see
     that this method incorporates the snowball method but differs in which debt to repay first.
     3. Debt consolidation: Debt consolidation can be a great tool for individuals with multiple creditors that are serious about
     repaying debt. With the above example, there is $7,000 available on the LoC, at a rate lower than both credit cards and the
     Personal  Loan.  Under  the  debt  consolidation  strategy,  they  would  borrow  $5,500  from  the  LoC  to  pay  off  both  credit
     cards.  They  could  take  this  one  step  further  and  make  a  one-time  pre-payment  to  the  personal  loan  of  $1,500,  thus
     maxing out the LoC, and increasing the minimum payment from $10 to $75. The savings from the credit card minimum

     payments  ($35  +  $75  =  $110)  would  more  than
     cover  the  increased  LoC  payment  and  the
     difference  can  be  used  to  continue  paying
     down  the  Personal  Loan.  Once  the  Personal
     Loan is paid off, they would start paying off the
     LoC (next-highest interest rate).
     Speak to your Advisor
     Everyone's tolerance and capacity to hold debt
     is different. With the right advice and support,
     you can eliminate your debt and the stress that
     comes along with it.
   12   13   14   15   16   17   18   19   20   21   22