With interest rates in the high teens and low twenties, credit card debt can be a huge burden on household finances. Making minimum payments will have you paying off that debt for years, with more and more of your hard-earned money going to the credit card companies.
What’s worse, is that credit card companies charge even higher interest rates on delinquent accounts, with some companies charging as much as 27.99% on delinquent accounts. That means if you miss two payments in a row, your interest rate goes up by 8 percentage points.
It is a lot easier to get into credit card debt than it is to get out of credit card debt. This article provides some useful tips on how to reduce credit card debt.
A good financial plan should have a few key aspects:
If you are going to reduce your credit card debt, you need to get a good hold on it:
To decide on what you will pay, you to know what you CAN pay. This may or may not match you have been paying:
Once you have created a detailed plan, you need to stick to it. If you miss two credit card payments in a row you will be considered delinquent. This can result in you being charged interest rates of almost 28%
Beyond just what you owe and how much you are being charged, you should be aware of your credit history. Free reports are available from Equifax Canada and TransUnion Canada.
If you are having difficulty making payments, credit card companies will sometimes agree to lower your rate or even your debt levels. From their point of view, it is better to get some of their money back rather than nothing.
If you have been paying your bills on time, your credit card company might agree to lower your rate in order to retain your business.
If you are holding onto credit card on multiple credit cards, you should focus on completely eliminating the debt from a single card, rather than reducing all cards at the same time:
An interesting study out of MIT found that switching to the use of cash made participants more cognizant of their spending, resulting in a reduction in total spending.
One option occasionally employed is to transfer the balance from one credit card to another. If the interest rate on one credit card is notably lower than the other, this can be a worthwhile initiative. There are a couple of things to be aware of, however, when considering this option:
There are other loan types that offer lower interest rates than credit cards and, if you own a home, this is definitely the route to take.
Essentially, you take out a loan that is backed by equity in your home. This loan has a lower interest rate than your credit card(s), which allows you to pay down your principal much faster and is a great way to reduce or eliminate your credit card debt.
This can be in the form of a home equity line of credit or a second mortgage. If you have issues with your credit rating, you can still use a private lender.
If you would like to learn more about your debt consolidation options, try some of the educational content below:
Interested in consolidating your debt? You can apply online. It’s quick, easy, and you are under no obligation!