MONEY MATTERS: If debt’s got you down, it’s time to get your debt down

Down with debt! But what is the best way to get debt down?

I just helped a friend consolidate her debts to reduce her interest costs significantly – rolling a personal loan, car loan and most expensive of all, outstanding credit card balances, into a single personal loan at a lower rate.

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“I’ve cut up my credit cards,” she assured me even before I could say debt consolidation works only if you don’t run up more debts – credit cards in particular.

But there’s more to debt consolidation than a lower overall interest rate.

You might have a lower rate and lower payments. But if it takes you longer to pay off the debt your total cost could be higher. So always calculate – or ask the lender for – the all-important total interest cost.

I always remind people to file their tax returns by the April 30 deadline to avoid a late filing penalty even if they owe money they can’t pay.

The Canada Revenue Agency offers taxpayer relief in a few clearly defined situations – see Form RC4288, Request for Taxpayer Relief - Cancel or Waive Penalties or Interest – but it’s more likely you will need to make a “payment arrangement.”

The simplest arrangement and the one most likely to be accepted by the CRA is a pre-authorized weekly or monthly debit based on your personal financial situation: income and expenses, assets and liabilities. Just make sure you contact the CRA with your proposal before they contact you.

And if you aren’t already doing so, use this same automatic approach for all your debt payments.

Finally, don’t stop making payments once the debt is repaid. You have managed without that money every month so redirect most if not all of that repayment power into reducing your next most expensive debt, or if you have no other debts, then into a savings/investment program – for example, your RRSP for 2019.

Mike Grenby is a columnist and independent personal financial advisor; he’ll answer questions in this column as space allows but cannot reply personally - email mike.grenby@gmail.com

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