Debt is becoming a serious issue in a number of Canadian’s lives. Whether it is because of student loans, credit card debt, or due to money management problems, there’s no shortage of reasons as to why someone may be struggling financially.

debt calculator

The worst thing someone in this situation could do is ignore the problem. Debt won’t just go away on its own, which is why it’s essential to take steps towards remedying it – the first one being figuring out which repayment plan will work best for you.

Choosing the Best Strategy

If you are suffering from debt there are a number of tools at your disposal, including a debt calculator. It’s designed to calculate how long it should take you to pay off all your debts using different repayment strategies. To use a debt calculator you need to enter in the following fields:

  • Debt Balance: Enter how much you owe for credit cards, loans, payday loans, lines of credit, etc. Add a separate entry for each item.
  • Debt Interest Rate: Include the interest rates for each item.
  • Monthly Payment: Enter how much you can pay every month towards all your debts.

Let’s use an example. Say you owe $9,000 in credit card debt at an interest rate of 20%, as well as a line of credit that’s $5,000 at 4% interest. You’ve also committed to making $250 worth of payments each month. After entering the required fields and hitting the button to do the calculations, the webpage will pull up multiple debt repayment plan options and lay out how long it will take to pay off everything using each one.

Minimum Payment Method

This method tells you in simple terms how long it will take you to pay off your debt with the minimum monthly payments you are making. Using the numbers mentioned above, it would take you 25 years to pay off everything and interest charges will amount to $17,275.47.

Snowball Method

The snowball method involves focusing on paying down the debts with the smallest balances first, while continuing to make minimum payments on the others. Using this method, it will take you 8.6 years to clear everything and your total interest will be $11,635.55.

Avalanche Method

Instead, you could decide to focus on paying down the debts with the highest interest rates first, while continuing to make minimum payments on the others. This way you minimize your interest charges by attacking those high interest ones first. With this method, it will take you 8.3 years to finish paying everything off and the total interest charges will be $10,906.82.

Debt Consolidation Loan

If you have a good credit rating you may be able to arrange a debt consolidation loan from your bank with an annual interest rate of 8% (note that rates vary). If you pay off your debts with the debt consolidation loan, then pay $250.00 towards that loan every month, it will take you 5.9 years to finish paying it  back and you would have paid a total of $3,583.77 in interest.

Credit Canada’s Debt Consolidation Program

If your credit rating isn’t great, it’s a real possibility that you may be turned down for debt consolidation loan from your bank. Instead, you could meet with a certified Credit Counsellor to get set up with a Debt Consolidation Program where you make monthly payments of $324.04.

Using this method, it will take you 4 years to clear your debt and you will pay no additional interest.

Choose What Works for You

Every Canadian faces different financial circumstances and that’s why it’s great to have a Credit Counsellor from a non-profit Canadian credit counselling agency on your side — especially one that can help you consolidate your debt at minimal cost to you. With their advice you’ll be able to choose the right debt repayment method that works best for you.