What No One Tells You About Credit Card Debt in Canada
Credit Card Debt Taking Over Your Life? Find Out How it Really Works.
Figuring out what to do about credit card debt is something that affects at least 1 in 3 Canadians.
It’s so easy to rack up a huge credit card debt without blinking an eye. But when you get your bill for the month, it’s not easy to deal with the shock of the debt that you may have just found yourself in. So how exactly do you deal with credit card debt in Canada?
There are so many questions that you might be wondering about credit card debt . How can you avoid it, settle it, or get rid of it completely? Read on to find some of theanswers to your commonly asked questions, about how to pay off credit card debt and figure out what your next move should be.
How do Credit Cards Really Work?
Credit cards can be a good thing for your credit score. But when you don’t understand how they work, you can find yourself in a really tough place really fast.
Credit card companies make money from theinterestthat they charge you. They lend you money for your purchase. Then you pay them back- with interest added for the amount of time you take to make payments.
If you pay off your purchase right away, you can avoid hefty interest fees. Agrace periodis given by most banks, which is a certain period of time you have to pay off your whole purchase without interest.
At TD Bank, for example, you have a 21 day grace period between your previous statement and your current due date to pay off the balance of your card.
If you miss a payment, or make a late payment, your interest rate will go up. Depending on your bank, an average of about 5% is added annually when this happens. It’s extremely important to make sure you’re on top of all your credit card payments. This way, you never have to pay more than you should.
When you are just meeting your minimum payment every month, you are only paying off the interest.
The monthly payment differs for every bank. For example, at RBC Royal Bank, the minimum payment will usually be $10 plus your interest for that month and any extra fees.
What About Store Credit Cards?
Your Walmart Mastercard is likely doing more damage to you than you’d think.
One way that stores make more money from their customers is by getting them to sign up for their store credit card. They offer you some type of incentive or reward, like saving 5% off your purchase or earning store credit for a certain amount of money spent.
While you might think that these cards are giving you benefits, these benefits don’t outweigh the amount of money you have to spent to receive them.
Theannual interest ratefor retail store credit cards is significantly higher than a credit card issued by your bank. In fact, if you don’t pay off your
purchase right away, you can end up spending almost as much as the purchase itself just in interest charges.
Since the interest rates are higher, so are the penalties for late or missed payments. You might also find yourself victim to many hidden fees. Most of us are unaware of these fees when we first sign up.
Be careful of how many store credit cards you sign up for. Your credit score can be damaged if you sign up for too many in too short a period of time.
How can I Avoid Credit Card Debt?
Start keeping track of your credit card purchases!
Only two-thirds of all Canadian credit card holders actually pay attention to what they charge to their card. The other third pays no attention to their charges until they get their monthly bill in the mail, leaving some with quite a shock.
Increase your monthly payments.Never stick to the minimum monthly payment. Since this is just your interest and some other fees, you will never pay off your debt in a reasonable amount of time.
Additionally, your interest rates will actually get higher if you continue to make minimum payments. When you make larger payments, even though you might feel like you’re causing more damage to your bank account, you’re actually doing yourself a favour.
Talk to alicensed insolvency trustee.Navigating the world of credit card debt is complicated. It’s also very time-consuming if you don’t know anything about finances.
A professional will help you get on track and make sure you have all the information you need to make the right decision.
Even if you haven’t completely gone into debt yet, a trustee can help you build a budget that will prevent you from digging a deeper hole.
If You Already Have High Credit Card Debt, Here are Some Options
Have you already become lost in the void of credit card debt? You might think it’s too late for you. But there are some options you could try before you get in too deep.
If you have multiple credit cards with large debts,pay off your smaller credit card balances first.Even if it was a small amount, you’ll still feel like you accomplished something big.
Feeling satisfied about paying off a debt is an awesome feeling! Paying off some of your smaller credit card debts first will give you that motivation to keep going.
Do some budgeting.If you can minimize some of your expenses, you can find some extra cash to make bigger payments on your credit cards.
This will help you pay off your debt faster. This leaves you with less time to stress about money and more time to enjoy your life. It might require some real sacrifices, but always remember that these sacrifices are temporary and will not last forever!
Crawford, Smith & Swallow Can Help You Get Out of Credit Card Debt
At Crawford, Smith & Swallow we have 70 years of experience helping people get out of debt and get their lives back on track. We are a team of professionals who are eager, hard working and motivated to help you with all your debt solutions.
Book a free consultation with us today if you think you need help with your credit card debt.