Sometimes, we all need to make purchases using credit. While that’s not necessarily a bad thing, too much consumer debt can impact your financial health and ultimately set you back from reaching your goals.  

So what is consumer debt? It’s created when you buy things using credit that don’t appreciate in value—this is different from ‘good debt’ like student loans or mortgages, which are investments. Excess consumer debt could be large credit card debt, maxing out a line of credit or your bank account overdraft. This kind of debt usually has high interest and once racked up, can be difficult to pay off.

If you find yourself with a lot of consumer debt, there are strategies that you can use to lift the load and get you on track to meet your goals—whatever they are.

Should I consolidate my consumer debt?

While that might seem like the go-to strategy for paying off multiple debts, it isn’t always the best approach for every financial situation.

“A lot of people think debt consolidation is their only option,” said Kerwin Berger, Market Director, ATB Financial. “Not only can consolidation loans be difficult to get, they can also take your short-term debt and stretch it out over a long period of time, costing you a lot more in the long run.”

Chat with an expert to find out if consolidation or another debt-paying strategy is right for your specific financial situation. In some cases, you’ll need an option that frees up the most cash flow, and a consolidation loan might not do that for you. Whatever strategy you go for, choose a solution that allows you to pay off your debt the fastest while being a good fit for your comfort level and situation.

Prioritizing debts is a smart strategy

Traditionally in the financial world, the general rule is to always pay off debt with the highest interest rate first. That approach makes sense, but this strategy might not work for you. In most cases, people find themselves in debt because of low cash flow. Finding a way to free up cash flow while paying off debt would be the best approach.

“You should look at each individual debt, determine the interest rate, balance and required payment on each of them. Then use that information to determine how you can prioritize paying them off in a way that will improve cash flow as quickly as possible,” said Berger.

For example, getting rid of the debts with lower balances first is an effective way to free up some cash, making it easier to take care of paying off the larger debts afterwards. 

Some debts have higher minimum payments. Getting rid of those higher required payments first can make taking care of regular living expenses easier and allow you to more comfortably and effectively pay down your other debts.

Another option is to pay off debts that have a low balance and high required minimum payments.

“Basically, I would always recommend looking for ways to increase cash flow, before you look at interest rates on each individual debt,” said Berger. “Not only will it help you pay off debt faster, it will also make it easier to pay your regular expenses and reduce a lot of stress.

The sooner you partner with your bank, the better

You don’t have to navigate debt alone. If you’re feeling uneasy with your debt situation, don’t wait to reach out for help. The sooner you come in and talk to your bank about it, the easier it will be to get the support you need.

“A lot of the time people delay asking for help because they feel embarrassed being in a bad financial situation. They should know that ATB is here to help them, not judge them,” said Berger. “Don’t wait until you can’t afford to make a payment or until you are stuck. The sooner you ask for help, the easier it will be.”

If you’re looking to create a strategy to pay off your consumer debt, chat with an expert at an ATB branch near you.​​​​​