4 Common Ways for Canadians to Get Out of Credit Card Debt
One of the most common types of debt for Canadians is credit card debt. This may be because credit cards are easy to obtain but have high interest rates. In fact, the number of credit cards in circulation in Canada has been steadily increasing since the early 2000s. According to Statistica, within the span of 20 years, the number of cards in circulation has increased from 40 to 80 million.
If we consider the increased use of credit cards by Canadians, it makes sense that a lot more people are accumulating credit card debt. Although not all debt is bad, having too much credit card debt can negatively impact your credit score and overall finances.
It seems obvious, but it needs to be said regardless. If you have an excessive amount of credit card debt, you need to stop using your cards until you regain financial control. Putting your cards somewhere out of sight will reduce your temptation to buy things with money you don’t have. Furthermore, it’s nearly impossible to get out of debt if you keep adding to it.
Once you’ve stopped using your credit cards, there are several ways you can go about getting out of debt. Read on to learn what these are.
4 Ways to Get Out of Credit Card Debt in Canada
1. Reduce Your Interest Payments
If you miss a credit card payment, you’ll be required to pay interest on the balance owing. When you consider that interest rates average around 20%, it’s easy to see how you’ll accumulate interest at an alarming rate. In this circumstance, you’ll want to consider a balance transfer. A balance transfer means moving your existing credit card debt to a credit card with a lower interest rate.
2. Give More than the Minimum Payment
The minimum payment trap occurs when you routinely pay only the minimum payment on your credit card debt. While you save on late fees, not paying the total balance owed will result in you being charged interest on the said balance. As a result, you’ll continue to accrue more debt. Hence the trap. Therefore, you should try to pay a little more than the minimum payment. For example, if you have a balance of $2000 with an interest rate of 18%, it will take you about 14 years to pay off if you only make the minimum payment each month. However, if you make $100 payments each month, it will only take you two years, and you’ll save $1403 in interest.
3. Use the Avalanche Method
A popular strategy for paying down debts is to use the Avalanche Method. This requires that you pay the minimum payments on all your debts and then put the remainder of your money on the debt with the highest interest rate. Once that debt is paid off, you move on to the next debt with the next highest interest rate while still making minimum payments on the rest of your debts. In this way, you’ll pay off one debt at a time and free up more money for the next debt you target.
4. Consolidate Your Debt
A well-known strategy for reducing credit card debt is debt consolidation through a personal loan or line of credit. This will reduce your interest rate, lower your monthly payments and simplify repayments by giving you only one debt to pay off.
If you’re having trouble with credit card debt, you’re not alone, and fortunately, there’s a number of solutions out there to help you get out of it. The first thing you’ll need to do is stop accumulating debt. This means not using your credit cards to pay for things. You should only use the money you have in your bank account. Once you’ve done this, you can then explore options for paying down your debt. These options include considering a balance transfer card to reduce your interest payments and paying more than the minimum required payment on your card. You can also consider using the Avalanche Method or consolidating your debt with a personal loan. Regardless of the option you choose to get out of debt, you must do something. Debt does not go away on its own.