There is a few school of thoughts about how to tackle debt. However there are two that stand out for me and two that I heavily contemplated before making the decision on how to tackle our family debts. We owe students loans, line of credit and credit cards. After moving to Vancouver, we have made the decision to stop accumulating debt and tackle our debts because now that we have the good jobs and we are in a better position to tackle our debts.
The first school of thought is the fast paced debt repayment. This method is advocated by financial advisors like Dave Ramsey. This method requires that all extra monies earned from ones paycheck and also avocates one gets secondary job or side hassles and endorses a full out assault on a individual’s debt. In this method, a person must put aside personal vacation, eating out, investment savings, and spend every earned money that is not used for basic necessity towards debt. This method requires alot of personal sacrifice and a total focus on erasing all debts at a fast pace. This method is not for everyone, however it will get the debts paid off the fastest. It requires alot of personal sacrifice and if you are not ready to sacrifice you may fail at this venture and lead you to more debt. However if you are displined and willing to sacrifice you will have all the debts paid off and you can begin to accumalate wealth. The pros of this method: quick payoff of debt and peace of mind, if both partners are on board with the process, it will increase the strength of the relationship. The cons of this method: too much sacrifice and this extreme method may lead individuals to become demoralized, if either one of the partners is not on board, it will lead to troubles in the relationship
The second school of thought is a balanced approach to paying off thought. It will take a longer process to pay off debt in this case and also it will delay how fast you are able to accumulate wealth because you are going to be paying for more interest over the long run. The balanced approach involves doing the budget and debts in a balanced approach that you failed to do, that is what caused you to go into debt in the first place. It involves setting up several accounts that prepare you for all eventualities, so that you do not need to get further into debt. For example set up a vacation fund, a clothing fund, a debt repayment fund, and create a livable budget that takes into account that minimum you feel you will earn each month. If you surpass that minimum, you can then use the extra amount to distribute between your various funds and accounts you have set up. Over time you will see that your debts will be lowered and that you will be able to enjoy other aspects of your life.
What method have we choosen to pay off our debt? We have choosen the slower method and the balanced method. We will be able to pay all our debts including student loans within 15 years. The only debt we will have is mortage debt, which we hope to get in about 8 years and pay it off before retirement. At the same time we hope to travel, realize our dream of raising a family, save for our retirement, and live a quality life.