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Personal Finance One size fits all? Not when it comes to getting out of debt

I joined a panel discussion last week about financial literacy and why it is particularly important for women to hone this valuable skill. After the panel wrapped, the Q&A turned into a discussion on debt. Just about everyone I know has some debt or a new house or new baby, and has some anxiety that they will be in over their head soon.

Canadians' household debt loads reached a record high in the last few months of 2011. For every dollar of personal disposable income earned, we owe $1.53, according to Statistics Canada, and there is confusion about where to go from here.

After the panel wrapped, the members of the audience echoed this confusion: "What should I pay off first?" and "'How do I do it?" and "Should I be saving while eliminating debt?" The consensus from the panel was that the solutions to our debt questions, and the strategy we use, should depend on our personality.

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J.D. Roth, author of Your Money: The Missing Manual, says that "debt elimination involves three main steps: Stop accumulating new debt, establish an emergency fund, and destroy existing debt." However, in order to effectively carry out these three straightforward ideas, we have to know ourselves and know what will work best for us.

For example, when I was working through my consumer debt more than four years ago, I was told to line up my debts from those with the highest interest rates to those with the lowest, and start at the top and work my way down. The problem was that my highest interest-rate debt was the credit card which also carried the highest balance. It was depressing and demotivating to realize how long it would take to knock this card off of the list. So, I tried the opposite approach. An approach that personal finance author Dave Ramsey calls the " debt snowball plan."

I reordered my debts from those with the lowest balance to those with the highest, and worked my way up instead of down. I paid down close to $10,000 worth of consumer debt in one year. My four friends who were reducing their own debts at the time thought it made little mathematical sense to do this. Sure, the first method would have likely saved me a little bit of interest in the long run, but the second strategy kept me motivated. At the end of the day, this is what matters most. If you haven't found a strategy that is right for you, run your numbers at Whatsthecost.com for additional options.

Along with picking the right strategy for you, it helps to make the process of funnelling money towards your debts as simple as possible by setting up an automatic payment plan. You can learn about setting up yours here. I also chose to open up a charge card instead of using my credit card. If you use a charge card you have to pay off your balance in full every month. No interest payments, no revolving debt, and you still receive the benefits of earning points and purchase protection. I also mentioned my debt-free date to friends and family and found an "accountability partner" to keep me on track and avoid the impulse buys that got me into trouble in the first place.

There isn't a quick fix or a magic solution to paying off our debts, but there are a number of strategies available to us. Our job is to test and tailor them until we find one that sticks and one that will eventually get us to debt-free bliss.

Angela Self is one of the founders of the Smart Cookies money group. Read her weekly column on managing debt and saving money at the Globe's personal finance site.

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