Although one of the most common types of debts consumers can have – credit cards also tend to be the most problematic, that’s according to a BC Consumer Debt Study released earlier this year by Licensed Insolvency Trustees Sands & Associates. Credit card debt was cited as the main type of debt that 55% of study respondents had, who later dealt with their debts by consolidating them with a Consumer Proposal, or by filing personal bankruptcy.
Senior-Vice President of Sands & Associates and Vancouver-based Licensed Insolvency Trustee Blair Mantin joined Breakfast Television to offer some tips for people who are trying to deal with their credit card debt, as well as highlight some pitfalls consumers should watch out for.
Watch the clip here and read more below:
Managing Your Credit Card Debt
- Always Pay More than the Minimum Payment Required
If you’re not paying off your credit card in full each month you’ll be accruing interest charges, with only a portion of your monthly payment going towards the principal amount you’ve borrowed. Paying only the minimum monthly payments required to keep your credit card debt serviced means (thanks to those interest amounts) even a small balance can take years and sometimes decades to pay off.
Scrutinize your budget to see how much more you can reasonably afford to pay each month. Only being able to make minimum payments (or slightly more) can be a sign of a debt problem escalating; if you’re far from being able to make real progress with meaningful payments it may be time to look into other options for dealing with the debt and ending the “never ever” cycle of minimum payments.
Tip: Check the back of your monthly credit card statement to look at the breakdown of how long it will take you to reach a $0 balance if you only make minimum monthly payments – you may be surprised at just how long it can take and find motivation to make extra payments if possible.
- Take a Break from Using Your Cards
Continuously using your credit card for new purchases is a cycle that needs be stopped in order to pay off the debt for good. Check your credit card statements regularly if you find yourself continuing to use your credit card to try to pinpoint what might be putting you overbudget.
Regular reliance on cash advances, payday loans or using credit to bridge the gap between wages and cost of living (including debt payments) is a sure sign of a debt problem coming to a head and it’s best to get advice from a Licensed Insolvency Trustee as soon as possible to stop the debt cycle from escalating.
Tip: Try curbing the temptation to overspend by carrying cash for day-to-day purchases – you may find yourself more hesitant to spend if you can physically see your money. If you are going to use your credit card, only do so for purchases that you already have the cash for so you can pay the new balance off right away and avoid interest charges.
- Focus on the Interest Charges
Because so much of ongoing credit card debt involves interest charges, even a 2-3% drop in your interest rate can help you in paying off your credit card debt sooner. If your balance is reasonably low and you’ve never missed any payments, consider contacting your lender to ask if they can give you a better rate, or even whether it makes sense to transfer the balance to another card.
If you have multiple credit cards, once you’ve reduced your interest rates as much as possible, you will want to focus on paying off the credit card with the highest rate first. While continuing to make your minimum monthly payments across all credit cards, add the extra money in your budget to that highest interest rate card’s payments – once it’s paid off, move those additional payments to the next one.
Tip: Debt consolidation financing generally offers a better interest rate than credit cards and can reduce your costs of carrying the debt, but avoid the temptation to take out more than what you need if it’s offered to you as a line of credit. Be aware that if you’re already overextended, don’t have an “ideal” credit score or an asset to pledge, bank-funded consolidation can be difficult to qualify for.
- Know Where to Get Debt Help
Many people try to pay off debts on their own and it can feel discouraging if your efforts aren’t showing progress. It’s important to know that there are non-judgmental professionals with legal solutions that can help you attain your debt-free goals. Licensed Insolvency Trustees are the debt help professionals regulated and endorsed by the federal government to help people manage their debts, using a few different solutions.
For example, a Consumer Proposal is an option that allows you to consolidate virtually all your debts without borrowing and interest charges, repaying the portion you can afford – the unpaid balances are forgiven by your creditors.
Tip: Licensed Insolvency Trustees help people with a range of credit scores and situations – there is no need to be facing a crisis to seek their advice. It takes less than an hour to discuss your situation with a local professional to assess your options and get a plan to be debt-free – and there’s no cost to do so.
Book your confidential free debt consultation today to learn more about how to deal with credit card and other consumer debts and connect with a local BC Licensed Insolvency Trustee.