Adam McHenry, CFA, MBA

Portfolio Manager, Raymond James Ltd.

As a seasoned Canadian financial advisor with two decades of experience, I’ve observed the trials and triumphs of countless individuals grappling with the labyrinth of debt management. The silver lining is, armed with a solid strategy and a disciplined mindset, you can successfully navigate this path and regain your financial freedom. Here are three strategies to effectively tackle and prioritize your debts.

1. Debt Snowball Method The Debt Snowball Method prioritizes your debts by size, smallest to largest. The psychological benefit of eliminating smaller debts can build momentum, much like a snowball gathering speed downhill. For example, if you have three debts: $500 at 5 per cent interest, $1,000 at 15 per cent interest, and $3,000 at 10 per cent interest - pay off the smallest debt first, while making minimum payments on the rest. The sense of accomplishment from paying off one debt can empower you to tackle the next.

2. Debt Avalanche Method The Debt Avalanche Method, on the other hand, targets debts with the highest interest rate first, without considering the debt size. This strategy can save you more money over the long term. For example, with the same three debts as above, you’d first pay off the $1,000 debt with a 15 per cent interest rate, then the $3,000 at 10 per cent, and finally, the $500 at 5 per cent, making minimum payments on the other debts concurrently.

3. Debt Restructuring Debt Restructuring is another effective strategy. This entails taking a low-interest loan (like a line of credit) to pay off high-interest debts (like credit card loans). For instance, if you have a $10,000 credit card debt at 19.99 per cent interest, taking out a line of credit or a personal loan at a 5 per cent interest rate to clear your credit card debt can significantly reduce the total interest you’d pay over time.

In conclusion, managing debt requires careful consideration and a customized approach. What works for one person might not work for another, so it’s essential to assess your financial situation and align it with the most effective strategy. Remember, the journey to a debt-free life is a marathon, not a sprint. Patience, discipline, and a clear strategy are your best allies in achieving financial independence.

Please feel free to reach me, Adam McHenry, at 416-901-6500 or adam.mchenry@raymondjames.ca. Let’s ensure you take the right approach based on your unique individual circumstance.

Raymond James Ltd. is a Member Canadian Investor Protection Fund. The views are those of the author, Adam McHenry, CFA, MBA, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. This information is general in nature, and is intended solely for the purpose of illustrating a general retirement guideline, based on various assumptions. Whether the guideline is appropriate and applicable for you will depend on your goals and your specific situation. Raymond James does not provide advice on tax, legal or mortgage issues. These matters should be discussed with an appropriate professional. Sources used when composing this article include Raymond James, Fidelity, Manulife, Investopedia, and Government of Canada website.