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Credit Card Debt Relief Methods that Work

Pay Off Credit Card DebtCredit card debt is easy to get into and very tough to get out of. A report released by BMO Financial Group in February 2015 showed that 46 per cent of Canadian credit card holders are currently carrying debt. It also found that, while 51 per cent of credit card holders pay off their balance every month, 30 per cent carry a monthly balance forward.

Carrying a monthly balance can be costly, especially if you’re only making the minimum payment every month. Depending on your credit card, your interest rate could be anywhere from 10-29 per cent annually. The average is about 18 or 19 per cent. Leaving a balance on a card and paying such high amounts of interest adds up very quickly.

For example, assume you have a balance of $2000 on a credit card and an 18 per cent interest rate on that card. If you make a minimum payment of $40 per month, it will take you more than 90 months to pay off that $2000 balance. Plus, in that time, you’ll pay over $1700 in interest! As you can see, you’ll end up paying almost double the amount you owe!

Plus, if you’re spending all of that money paying off one $2000 loan, you’ll have less money for other expenses. This could cause you to borrow more or put more purchases on your credit card in order to make ends meet. Then, since you don’t have the funds available, you’ll only be able to keep making the minimum payments. This can very quickly get you into serious debt trouble.

However, credit card debt relief is possible. There are a number of different options available to you.

Different Credit Card Debt Relief Options

When it comes to credit card debt relief, there are several different alternatives. Determining which method is the best for you will depend on your particular situation and circumstances. Here are a few different paths you could take if you are looking for credit card debt relief.

 

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Credit Counselling
You may choose to go to a credit counselling agency and develop a monthly payment plan. They will work with you to prepare a monthly budget that allows you to repay the full amount owing on your credit cards over time. Usually new interest charges stop accruing at this point. This may be your best option if you are able to reduce your normal monthly living expenses to allow these repayments in full. But often this is not practical so you need to look at other options

Debt Settlement & Debt Consolidation
Speaking with your creditors and working out an alternate payment plan that is more reasonable is typically called “debt settlement.” Using this method you would have to go to your major creditors individually and make an arrangement with them individually to repay all or a portion of the debt. Another credit card debt relief option is known as “debt consolidation.” This method works by getting another loan that has a lower interest rate than your current debt. You can then use that loan to pay off your existing debt. This will leave you with a debt that has a lower interest rate which will save you money over time.

It’s important to note that, if you have a lot of outstanding debt or if you’ve missed debt payments in the past, it might be difficult to get a new loan with a lower interest rate. Also, while a debt consolidation loan could save you interest costs, it doesn’t reduce the overall debt that you have.

Speak with a Trustee in Bankruptcy
A trustee in bankruptcy is a person who is licensed and regulated by the federal government. A trustee is able to review a person’s financial situation and then work to explain the different options that are available to alleviate this person’s debt load.

Two typical options include consumer proposal and bankruptcy.

Consumer Proposal
A consumer proposal is a situation where you make an offer to all of your unsecured creditors that sees you pay a lower amount than you owe over a specified period of time. Once you have made the agreed-upon payments, your outstanding debt is forgiven. This is a legal process that provides protection against calls from creditors, wage garnishment and legal action.

Bankruptcy
Another option is bankruptcy. When you file for bankruptcy, your trustee reviews your assets and income and determines the cost of bankruptcy. You may have to hand over some assets to the trustee, depending on the value of your assets and the province that you live in. These non-exempt assets will be used to satisfy your creditors. Bankruptcy is also a legal process that provides similar protection from creditors as a consumer proposal.

When it comes to credit card debt relief, there are many different methods available. Fully understanding your situation and the options that are available to you can help you make the right choice for your situation.