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Your Guide To Eliminating Credit Card Debt

Your Guide To Eliminating Credit Card Debt

couple stressing over credit card debt

Having a credit card in today’s world seems inevitable when so many services and sales are often only available to a card holder online. Used responsibly, credit cards can be a beneficial financial tool. But while credit cards can offer rewards and cash back on everyday purchases, taking advantage of these perks hinges on your ability to pay off your balance monthly. And, having a good credit score is crucial to get approved for the mortgage you need to buy a home. 

However, for many individuals, staying on track with monthly payments can prove to be a challenging task. Shockingly, recent reports from major credit bureaus indicate that Canadians collectively accumulated a record-breaking $100 billion dollars in credit card debt last year, marking a milestone in financial history.

Let’s be honest – if you find yourself burdened by escalating credit card debt, those coveted rewards points lose their appeal. The longer it takes to pay off what you owe, the more interest piles up, creating a costly cycle.

This guide I designed specifically to help you pay off your credit card debt faster, saving you hundreds, or even thousands, in interest along the way. But, where do you get started?

You Find A Payment Strategy to Pay Off Debt That Works FOR YOU.

Having a solid payment strategy will help keep your credit card debt on track. Below are a few methods to help you pay off your credit card faster which my clients often find work well for them. 

Pay more than the minimum – Credit card issuers give you a monthly minimum payment, often 2% of the balance, but remember, they make money off the interest they charge so be sure to pay more if you can.

The debt snowball – Start by sorting your debts based on the amount owed, and target the smallest one first. Once that’s cleared, take the payment you were making on it and add it to the amount you’re paying on your next smallest debt, and continue this snowball effect.

The debt avalanche – The opposite of the “snowball”, the debt avalanche targets debts with the highest interest rates first. You pay off a larger than minimum amount on your highest bill and maintain a minimum on your smaller credit card bills. Then you move on to the next highest amount.

Make your payments automatically – Having a preset amount applied to your credit card each month is an easy way to make sure your debts are being paid so you avoid racking up additional costs in late fees. This is especially useful if you’re forgetful or a master procrastinator –  as long as you have a steady enough cash flow to avoid overdraft charges.

Lower your living expenses – This will free up money to put towards eliminating your credit card debt. You can do this by finding a better deal on your internet or cell phone, and cutting back on travel and entertainment.

Need a Faster Solution? Try One Of These Debt Payment Methods

If your credit card debt built up to the point where these ideas aren’t going to make a big enough difference? One of these options might be the solution you’ve been looking for:

Take out a debt consolidation loan – This is a personal loan with a low, fixed interest rate. You can use it to pay off all of your outstanding debts so you’ll only have one bill to worry about each month. These loans have a set payback period so there’s an achievable goal. However, you’ll need a high enough credit score to qualify.

Transfer the balance to a low interest credit card – This option involves finding a credit card with a lower interest rate — some even have a limited time offer of 0% when you open a new account – and moving the balance of your existing credit cards over. The low interest rates will have a time limit and there is usually a balance transfer fee so make sure that the savings are worth it. And, if your credit score isn’t great, you may not be eligible.

Hire a debt management company – If your credit score is too low for either of the options above, you might need to find some outside help. A debt management company will work with your creditors to reduce your monthly payment and interest rate. Some of these companies charge fees for their services and may end up costing you. Do your research online ahead of time to find a reputable organization.

Need A More Drastic Measure? There Are Other Debt Solutions

If you find yourself unable to cover what you owe each month and struggle to get your debt in check, it’s time to take serious action. Think about these other options for getting your credit card debt under control.

Take out a home equity loan – An equity take-out loan lets you use your house as collateral for a loan with a low interest rate, basically a second mortgage. Just remember that now your home is your guarantee so you need to be absolutely sure you can afford the monthly payments. 

Withdraw money from your RRSP – If you’ve got money invested in an RRSP, you can access it to cover your credit card debt. However, you’ll have to pay withholding tax and you’ll have to report the money as taxable income. This may end up costing you more in taxes plus you’ll be missing out on your investment interest.

File a consumer proposalThis is a deal worked out between you and your creditors, with the help of a Licensed Insolvency Trustee. It gives you more time to pay off your debt, allows you to pay a smaller portion of what you owe, or sometimes a mix of both. Although this sounds great, this will result in a low credit rating so you won’t be able to get additional credit for things like a car or a mortgage.

Declaring personal bankruptcy – Declaring personal bankruptcy wipes out most of your debts, but it comes at a cost – you’ll have to give up major assets like your car, investments, and possibly even your house. Your credit rating will plummet to the lowest point (R9) and stay there for six to seven years. This means lenders may avoid you, making it hard to buy a house or get a car loan. Your retirement savings could also take a hit.

Before You Decide, Give Me A Call

Don’t be overwhelmed by your credit card debt, there’s a solution that will work for you. As a professional financial advisor and mortgage broker, I can help you find the best way for you to get control of your financial situation so that you can get back on track towards a good credit rating. 

To get started, schedule a virtual consultation with me today. Click this link or give me a call directly at 705-315-0516. Together we will review the numbers and get a handle on your credit card debt to give you the financial freedom you’re looking for.

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