Canadians have been using everything at their disposal to bring down costs. This is why, as the holidays come closer, it’s time to get into a stressful topic: debt. Now, let’s get into a plan to tackle all your debts and to spin those savings into long-term gold.
Use the snowball method
One of the best ways to tackle debt is by using the snowball method. Here, you line up all of your debts from the highest interest rate to the lowest, besides a mortgage. That should start with your credit card debt.
Then, you’ll want to throw everything you can at your highest-interest debt over and over again. To do this, you’ll need to create a budget. And a great option is to use the net zero method.
The net zero method means you create a budget based on all your essential items. You need to pay bills, you need to eat, and you need a place to live. There are apps out there that can help you create a budget like this in minutes. Then, all that’s left gets put directly towards your debt over and over.
Turn it around
You’ll be shocked at how quickly you can pay off debts — especially if you take the option of consolidating debts. Once you’ve done that, there have been many users expressing that this method makes them feel as if they got a raise. You suddenly realize all the unnecessary spending you’ve been doing.
Now that those debts are repaid, you can put those savings to good use by investing! And over 20 years, that can turn into a lot of cash — especially when used in a Tax-Free Savings Account (TFSA). Let’s see what happens even with slow-burning stock.
Invest!
Now, let’s say you were able to identify $8,000 you could put aside each year for the next 20 years after debts are repaid. This will likely change over time, but for the sake of this example, we’ll say you always have that $8,000. Over 20 years, that alone would save you $160,000!
But let’s take it further. Let’s say you take that $8,000 each year and invest it in a safe and stable stock such as Great-West Lifeco (TSX:GWO) with dividends included. This stock has climbed higher and higher over time and should continue to do so as it expands within the insurance and asset management sector.
| Year | Share Price | Shares Owned | Share Value | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Stock Price | New Shares Purchased | Year End Shares Owned | New Balance |
| 1 | $42.00 | 190.00 | $7,980.00 | $2.08 | $395.20 | $8,375.20 | $8,000.00 | $43.16 | 195.00 | 385.00 | $16,616.60 |
| 2 | $43.16 | 385.00 | $16,616.60 | $2.19 | $843.15 | $17,459.75 | $8,000.00 | $44.35 | 199.00 | 584.00 | $25,900.40 |
| 3 | $44.35 | 584.00 | $25,900.40 | $2.31 | $1,349.04 | $27,249.44 | $8,000.00 | $45.57 | 205.00 | 789.00 | $35,954.73 |
| 4 | $45.57 | 789.00 | $35,954.73 | $2.43 | $1,917.27 | $37,872.00 | $8,000.00 | $46.82 | 212.00 | 1,001.00 | $46,866.82 |
| 5 | $46.82 | 1,001.00 | $46,866.82 | $2.56 | $2,562.56 | $49,429.38 | $8,000.00 | $48.11 | 220.00 | 1,221.00 | $58,742.31 |
| 6 | $48.11 | 1,221.00 | $58,742.31 | $2.70 | $3,296.70 | $62,039.01 | $8,000.00 | $49.43 | 229.00 | 1,450.00 | $71,673.50 |
| 7 | $49.43 | 1,450.00 | $71,673.50 | $2.84 | $4,118.00 | $75,791.50 | $8,000.00 | $50.79 | 239.00 | 1,689.00 | $85,784.31 |
| 8 | $50.79 | 1,689.00 | $85,784.31 | $2.99 | $5,050.11 | $90,834.42 | $8,000.00 | $52.19 | 250.00 | 1,939.00 | $101,196.41 |
| 9 | $52.19 | 1,939.00 | $101,196.41 | $3.15 | $6,107.85 | $107,304.26 | $8,000.00 | $53.63 | 263.00 | 2,202.00 | $118,093.26 |
| 10 | $53.63 | 2,202.00 | $118,093.26 | $3.32 | $7,310.64 | $125,403.90 | $8,000.00 | $55.10 | 278.00 | 2,480.00 | $136,648.00 |
| 11 | $55.10 | 2,480.00 | $136,648.00 | $3.50 | $8,680.00 | $145,328.00 | $8,000.00 | $56.62 | 295.00 | 2,775.00 | $157,120.50 |
| 12 | $56.62 | 2,775.00 | $157,120.50 | $3.69 | $10,239.75 | $167,360.25 | $8,000.00 | $58.18 | 314.00 | 3,089.00 | $179,718.02 |
| 13 | $58.18 | 3,089.00 | $179,718.02 | $3.89 | $12,016.21 | $191,734.23 | $8,000.00 | $59.78 | 335.00 | 3,424.00 | $204,686.72 |
| 14 | $59.78 | 3,424.00 | $204,686.72 | $4.10 | $14,038.40 | $218,725.12 | $8,000.00 | $61.42 | 359.00 | 3,783.00 | $232,351.86 |
| 15 | $61.42 | 3,783.00 | $232,351.86 | $4.32 | $16,342.56 | $248,694.42 | $8,000.00 | $63.11 | 386.00 | 4,169.00 | $263,105.59 |
| 16 | $63.11 | 4,169.00 | $263,105.59 | $4.55 | $18,968.95 | $282,074.54 | $8,000.00 | $64.85 | 416.00 | 4,585.00 | $297,337.25 |
| 17 | $64.85 | 4,585.00 | $297,337.25 | $4.79 | $21,962.15 | $319,299.40 | $8,000.00 | $66.63 | 450.00 | 5,035.00 | $335,482.05 |
| 18 | $66.63 | 5,035.00 | $335,482.05 | $5.04 | $25,376.40 | $360,858.45 | $8,000.00 | $68.46 | 488.00 | 5,523.00 | $378,104.58 |
| 19 | $68.46 | 5,523.00 | $378,104.58 | $5.31 | $29,327.13 | $407,431.71 | $8,000.00 | $70.43 | 530.00 | 6,053.00 | $426,312.79 |
| 20 | $70.43 | 6,053.00 | $426,312.79 | $5.59 | $33,836.27 | $460,149.06 | $8,000.00 | $72.37 | 578.00 | 6,631.00 | $479,885.47 |
As you can see, $8,000 invested each year while reinvesting dividends could create $479,885.47 in 20 years! So, tackle those debts and get richer than you ever thought possible.
