To help make your debt-reduction goals possible, here are some frequently asked questions that relate to debt and repayment plans, as well as how your credit history may be impacted. Learn more about making a debt reduction plan.
1. What are some tips for reducing my debt?
Every little bit counts. Here are some helpful strategies:
- Pay off debts with the highest interest rate first.
- Pay off credit cards every month to avoid accruing interest charges.
- Consolidate debts to reduce interest costs and ease cash flow.
- Increase your loan payments each time your salary increases.
- Set up a budget for discretionary expenses.
- Calculate your monthly cash flow.
- Look for ways to reduce your living expenses.
- Use unexpected money (e.g., a bonus at work, tax refund, gift money) to repay your debt.
- Shop around for things like auto, home and life insurance, as well as mortgage rates and car loans. Your efforts may save you considerable money.
For instance, through agreements with various provincial and territorial medical associations(PTMAs), MD clients may benefit from extremely competitive rates on many types of insurance. MD’s relationship with National Bank1 also provides clients with products and services to address all of their banking needs, including preferred rates on mortgages.
2. What is debt consolidation?
Debt consolidation results when you transfer high-interest debt to a lower-interest debt arrangement or when you consolidate several types of debt into one. An example would be using your personal line of credit to pay off high-interest credit cards. Benefits of debt consolidation may include:
- reducing your overall interest costs
- building a clear strategy and timeline for eliminating your debts
- creating a sense of control over your financial situation
- making debt management easier to track
3. What’s better, paying off debt or investing?
Everyone has a different comfort level when it comes to debt. It’s best to use the expertise of an advisor, such as your MD Advisor, when considering your needs and goals. He or she can help you determine what’s best for your situation—pay off debt, invest, or do both.
MD’s Cash Flow Calculator allows you to estimate your cash flow and work with your MD Advisor to determine how best to use your cash flow to achieve your financial goals.
4. What is a credit report?
A credit report is personal credit history that tracks your financial activities and personal financial habits. Lenders send information about their financial relationship with you to credit reporting agencies on a regular basis. It includes details such as when you opened your account, whether or not you make your payments on time and whether you have missed a payment.
5. Why is it important to maintain a good credit history?
Your credit history is information about your borrowing transactions. It reflects your reputation, competence and trustworthiness as a consumer and a borrower. If your credit history is poor, you may have difficulty getting a loan or mortgage or renting an apartment or house. It may also result in having to pay higher interest rates.
6. How do I access my credit report?
You can obtain your report once every six months from Equifax Canada (equifax.ca) or TransUnion (transunion.ca), either online or by mail.
7. What hurts my credit score the most?
Defaults in payments negatively affect your personal credit file, as do high balances on revolving credit, such as credit cards and lines of credit. Your credit rating is also affected by any court judgments against you.