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Paying Credit Card Debt

High levels of credit card debt are, unfortunately, quite common. It’s easy to see how someone can quickly find themselves in more debt than they can handle. High levels of debt leave you with very few options should something unfortunate happen. For example, you may be able to pay off your credit card bill in full each month right now, but what if you were faced with a big home repair bill or your car broke down? Could you afford this expense along with your credit card bill? What if you lost your job or got sick or injured and could not work for a while?

Consumer debt in Canada is very high. On average, each Canadian owes $1.63 for every dollar they earn. The average level of non-mortgage debt for a Canadian family is $20,759. According to a recent survey from the Canadian Payroll Association, 48% of Canadians are living paycheque-to-paycheque and 36% feel overwhelmed by debt. The same survey found that credit card debt is the second most common debt (after mortgage debt) with 19% of those surveyed saying they currently have credit card debt.

If you are struggling to pay off your credit card, here are some tips that could help you:

  • Stop using your cards.

    • Credit card debt can be tough to get under control, especially if you keep adding to your debt load. Start making purchases with cash. You may have to cut some items out of your budget in order to make this happen. However, using cash will prevent you from getting deeper and deeper into debt.
  • Trim expenses and budget.

    • As mentioned, when you’re using cash, you’ll likely need to cut some expenses in order to make ends meet. However, if you hope to pay down your credit card debt more quickly, you’ll need to reduce expenses even more in order to have money to put towards credit card debt.
    • A good way to do this is to rank your spending in order of importance. Obviously, things like rent/mortgage payments and grocery shopping are important, but you may be able to cut down on entertainment spending and other such expenses.
    • Even necessary expenses such as food costs can likely be reduced. Shop sales, make a list so that you don’t make impulse buys or waste food, cook at home and use other such tactics to reduce your monthly food spending. Taking steps like this can reduce how much you spend each month.
  • Come up with a plan.

    • You’ll need to have a plan if you hope to pay down your credit card debt. There are a few strategies for paying down credit card debt. Here are a couple:
      • The “Stacking” Method

        • This method involves paying off the highest interest credit card debts first. With this method, you pay the minimum balance on all cards other than the one with the highest interest rate. You then pay as much as you can on this card each month until it is paid off completely. Then you move onto the card with the next highest rate and continue from there.
        • The goal in this method is to get rid of the cards with the highest interest rates first, saving you money in interest charges.
      • The “Snowball” Method

        • With the snowball method, you pay off the credit card with the smallest balance first, and pay the minimum on all other cards.
        • The goal of this method is to eliminate credit card balances, which will inspire you to keep going as the number of bills you have to pay decreases.
      • Debt Consolidation

        • In debt consolidation, a person uses a loan with a lower overall interest rate to pay off their higher interest loans, saving them money. Debt consolidation can happen by transferring your outstanding balances to the credit card with the lowest interest rate or by taking out a new loan and using it to repay your debts.
        • You may find it difficult to get a new loan if you have a weak credit rating due to missed debt payments or late payments.

If you are struggling to repay your credit card debt and are looking for help, a trustee in bankruptcy can review your situation and provide you with details on the options available to you. Most trustees offer the initial consultation at no charge.