What can you do to get a handle on credit card balances and pay off your credit card bills for good? Read on for strategies in managing credit card balances, paying down credit card debt, and the professional resources available to BC consumers.
The Problem with Credit Card Debt
Any debt can turn into a problem, but credit card debt in particular is often particularly troublesome. In recent studies of our client base published in the BC Consumer Debt Study credit card debt has in fact been called out as a client’s main debt concern five times more than other types of problem debt by insolvent consumers.
Not only do many people regularly use this type of revolving credit for day-to-day purchases, where there’s an immediate need to bridge the gap between cost of living expenses and income (even just between paydays) or cover an unplanned cost, credit cards are often seen as quick, easy solution.
- Consider, if you faced a sudden drop of income even just for two or three months – how would you pay your bills and household costs?
- Debt problems commonly start or are aggravated by things outside a person’s immediate control. A job disruption in your household, a marital breakdown, an illness – those are just a few examples of challenges that can have a devastating financial ripple effect.
The major issue with credit cards is that every time you don’t pay your balance in full by the due date you are going to be charged interest. Even for a small balance, the interest means the cost of everything you’ve purchased has increased.
Is My Credit Card Debt a Problem?
If you regularly carry a credit card balance, here are some warning signs that your credit card debt is (or is becoming) a problem that you should address immediately:
- You’re carrying a balance month after month on your credit card
- You use your credit card for cash advances
- You can’t get through the month without relying on your credit card
- Your balance keeps getting bigger (especially if you’re making payments at the same time)
- You only make the minimum payment required, or just slightly more than
- You’re close to hitting your credit limit
- You are also using payday or ‘fast cash’ instalment loans
- You’re generally feeling stressed about your credit card balances
Strategies to Control Credit Card Debt
There are a few plans to consider if you want to try a DIY (“do-it-yourself”) approach to managing your credit card bills. However, if you’re struggling to make your payments or have to use credit to get your bills paid, connect with a Licensed Insolvency Trustee right away – a DIY solution is likely to prolong or even aggravate the problem.
Choose a Card to Pay Off First
One place to start with a self-directed plan it to make a list of all your current debts and balances, then decide what makes sense to pay off first. You would make the minimum required payments on all your debts and use extra money (as allocated in your budget) to pay down the account you’ve chosen. Once it’s paid off, move your extra payments to the next, and so on.
You might choose based on one of the following:
- Pay off your debt with the highest interest first, so you’re mitigating the accumulating interest costs
- Pay off your debt with the lowest balance first, to build momentum and keep motivated (though this may cost more in accumulated interest over time)
You may also want to take additional measures such as:
- Using a secured credit card instead of a regular credit card
- Implementing a cash-only spending rule for yourself
- Talking with your creditors to inquire about lowering your interest rate
- Creating a schedule for paying back money you may owe to family or friends
- Closing credit accounts as they are paid off
As you tackle your credit card debt it’s important to think about how it accumulated in the first place so you can take steps to prevent the same thing happening again (where possible):
- Are you overspending because your budget isn’t aligned to your actual income and expenses? In which case you’ll want to invest some time sorting out your budget (being sure to account for funds to pay off your credit cards) and regularly tracking your incoming/outgoing money.
- Making sure your budget is in check and controlling spending will be a key step in any strategy to getting – and keeping – your credit cards paid off.
Refinance Credit Card Balances
Some people may consider applying for consolidation loans to pay off multiple debts under one combined monthly payment. This may be helpful in organizing your debt, and can assist you in paying it off if:
- You can get a loan with an interest rate better than you’re currently being charged on the debts you’re consolidating
- The loan’s monthly payment is lower than your current combined monthly payments
- All (or most of) the debts you owe can be covered in the consolidation
- You can avoid accumulating new debt (through the credit you’ve freed up or otherwise)
Whether you are interested in a loan, balance transfer, line of credit or other borrowing product, you need to be careful to fully understand the terms and what is needed for you to have it paid off.
Try the ‘Rule of 60’ Math
Qualifying for borrowing, being able to afford your payments, staying motivated, having your budget disrupted by outside factors, and staying ahead of accumulating interest can all make paying off your debt difficult when you’re refinancing or using a self-directed repayment plan.
One easy way to spot potential challenges is doing a quick ‘Rule of 60’ calculation: Add up your total (non-mortgage) debt then divide by 60.
- Is the result a monthly payment you could consistently afford to have your debt paid off in five years (60 months)?
- If not, or you feel payments may not be sustainable, a plan such as a Consumer Proposal that has a debt reduction component may be good debt solution to consider. Connect with a Licensed Insolvency Trustee in your province to explore your options in a free confidential consultation and work out a detailed plan that’s right for you.
For many people a Consumer Proposal offers a secure and affordable way to pay off their credit cards and other debts for good.
Consolidate and Cut Credit Card Debt with a Consumer Proposal
If you can afford a partial payment on your credit card debt AND want a boost in getting to debt-free with less cost or time, a Consumer Proposal is a unique and powerful debt solution you can access by working with a Licensed Insolvency Trustee. Here’s how it works:
Consolidate virtually all your debts totalling up to $250,000 in a Consumer Proposal, a non-borrowing option that will offer your creditors repayment of only the portion of your debt that you can afford to repay.
- Most people offer a monthly payment for a set period (of up to five years), which you’ll make to your Trustee who will then send those payments on to your creditors.
- Your creditors will agree to write-off the unpaid balance. Total debts can often be reduced from up to 50-80%.
- Almost every type of debt can be included in a Consumer Proposal – from credit cards to income taxes, payday loans to student loans and beyond.
- You also have the option to keep up financing arrangements for secured debts like your vehicle loan or mortgage.
- There is no borrowing, credit check, or co-signer required to do a Consumer Proposal and your creditors will not be allowed to continue charging you interest (or any collection actions either).
- No added fees or hidden costs. All you pay is what you’re offering to your creditors.
- Monthly payments are usually substantially lower than bank-based consolidation that requires you to pay all your debts in full with interest – and lower than credit counselling plans that charge fees for services (yes, even non-profit plans) and still require you to repay 100% of your debt, with an interest-freeze on certain debts.
Consumer Proposal Example: You owe $40,000 total in credit cards and other debts and offer your creditors $9,600, paid by way of $200/month for 48 months – cutting your debt over 75%, with a clear date as to when you’ll be debt-free. You can also pay off your Proposal early any time, without penalty.
Free Professional Debt Advice
It’s important to get accurate advice and debt services provided by a qualified professional. When you work with a Licensed Insolvency Trustee you can be confident you are dealing with the professional best equipped to help you get out of debt.
Licensed Insolvency Trustees are the only Federally regulated professionals who offer debt management advice and services to consumers. We help people evaluate their financial situation, understand their current and future needs, and explore ways to pay off their debt and ultimately achieve their goals.
The thought of speaking with a professional of any kind about your financial situation can feel intimidating for many people, and we understand that opening up to someone who is essentially a stranger might feel uncomfortable at first.
Sands & Associates offers a non-judgmental and supportive approach to helping people with debt.
- We believe that a debt problem can happen to anyone and that everyone to deserves to be treated with dignity and respect.
- We aim to make our full suite of debt help services accessible for people across BC, with options for in-person or online services – whatever is most comfortable and convenient for you!
There is no cost to connect with one of our qualified BC debt help experts to talk about your situation and find out about your options – knowing is not owing.
Get the debt-free plan that’s right for you. Connect with a friendly, non-judgmental expert from Sands & Associates, book your free confidential debt consultation today.