This guide will help you create a realistic budget, manage expectations, and avoid holiday debt – all without sacrificing the fun.

What is a holiday spending plan (and why do you need one)?

A holiday spending plan outlines what you need, what you can afford, and how you’ll pay for it. It keeps you intentional and prevents the “holiday creep” that leads to credit card strain in January.

A good plan helps you:

• Avoid impulse purchases
• Prioritize what matters most
• Stay within your comfort zone
• Reduce January financial stress

If gifts are your biggest expense (for most people, they are), this is where planning ahead makes the biggest difference.

Download our free Gift Giving Budget Tracker to organize your gift list, set limits, and track spending with ease.

How to manage holiday spending – step-by-step

1. Assess what you actually need

Make a quick list of holiday essentials:

• Gifts
• Food and hosting
• Travel
• Décor
• Events

Then identify where you can simplify. Many families agree to focus on children, do a Secret Santa, or set a per-person gift limit.

2. Build a budget you can stick to

Assign a maximum amount to each category and review where you can trim costs.

Tools that help:

• Simple spreadsheet
• Phone budgeting app
• Cash envelopes
• Our Gift Giving Budget Tracker for detailed gift planning

3. Identify extra income (if needed)

If your budget feels tight, consider:

• Picking up a seasonal shift
• Selling unused items
• Freelance or craft-based side gigs

Even small boosts can help to provide breathing room.

4. Track your spending in real time

Overspending happens when you don’t know where the money went. A quick rule: subtract every holiday purchase from your category immediately. This is simple to do in our Gift Giving Budget Tracker.

Holiday spending red flags to watch for

Red flag 1: Relying too heavily on credit cards

Credit card interest quickly makes holiday purchases more expensive when your bill isn’t paid off in full at the end of each month.

Red flag 2: Emotional or guilt-based spending

Feeling obligated often leads to overspending.

Red flag 3: Last-minute shopping

This almost always leads to paying full price for items you can purchase in sales.

Red flag 4: Buy-now-pay-later temptations

These can stack up fast and lead to surprise bills in the new year.

Red flag 5: Unclear expectations with family

Not agreeing on limits causes overspending by default.

How holiday spending impacts your January finances

Overspending can lead to:

• High interest charges
• Lower credit scores (from high credit utilization)
• Delayed savings or debt repayment goals
• Increased financial stress

A realistic budget now protects your financial wellbeing in the new year. If your credit card balances feel unmanageable after the holidays, a consumer proposal may offer a more affordable way to reduce your debt by up to 80% and stop interest from growing.

Realistic holiday scenarios and simple fixes

Scenario 1: Large family gifting

15+ people to buy for.
Fix: Propose a Secret Santa or kid-only gifting.

Scenario 2: The last-minute shopper

Everything is usually bought at full price last minute each year.
Fix: Make a plan by early December and track each purchase.

Scenario 3: Hosting on a budget

Food and décor add up quickly.
Fix: Host potluck-style and reuse older décor.

Scenario 4: Travel stress

Holiday travel prices balloon.
Fix: Travel on off-peak days or use reward points.

Holiday budget templates you can use

Template: Message to set gift expectations

“Hi everyone! To help keep things manageable this year, can we set a spending limit or focus on gifts for the kids? Thanks for understanding!”

Template: Politely opting out of events

“Thanks for the invitation! I’m keeping a more mindful holiday budget this year, so I may sit this one out – but I’d love to catch up in January.”

Maximize your planning with our free Gift Giving Budget Tracker

Want an easier way to organize all your gift ideas and spending?

Our free Gift Giving Budget Tracker includes:

• A clear budgeting dashboard
• Space to list recipients and gift ideas
• A section to track purchase dates, costs, and retailers
• A total spending summary
• Tools to plan for birthdays, holidays, and year-round giving

Download your free Gift Giving Budget Tracker to stay organized and avoid overspending – during the holidays and all year long.

Holiday Spending FAQs

How much should I spend on the holidays?

Whatever fits comfortably in your budget – not a fixed dollar amount.

How do I avoid overspending on gifts?

Plan early, set limits, and track purchases using a tool like our Gift Giving Budget Tracker.

Is it better to pay with cash or a credit card?

Cash prevents overspending; credit works if you pay the full balance immediately.

What if I overspend this year?

Adjust January’s budget, pause non-essential purchases, and review your debt options if you’re struggling.

If the holidays have left you feeling financially overwhelmed, you don’t have to navigate it alone. Reach out to us anytime or book a no-obligation consultation to explore your options and speak with a Licensed Insolvency Trustee for free, confidential advice.

]]> https://www.spergel.ca/learning-centre/how-much-credit-card-debt-is-normal/ Fri, 20 Jun 2025 15:27:56 +0000 https://www.spergel.ca/learning-centre/how-much-credit-card-debt-is-normal/ If you’re wondering “how much credit card debt is normal?”, you’re not alone. Credit card use is widespread in Canada, and with inflation and rising interest rates, many Canadians are leaning more heavily on credit just to cover basic needs. But at what point does credit card debt become a problem?In this article, we’ll break down the average credit card debt in Canada, what’s considered ‘normal’, and how to know if your debt level needs attention.

What’s the average credit card debt in Canada?

Recent data from Equifax Canada’s Q1 2025 Consumer Credit Trends Report shows that the average Canadian credit card balance reached $4,185 in early 2025 – an all-time high. This reflects a national trend of increased credit reliance amid high inflation and economic uncertainty. Here’s a snapshot of average credit card debt by age group:

These averages may offer perspective – but they don’t define what’s “healthy” for your unique financial situation.

So, how much credit card debt is normal?

“Normal” is relative. While averages are helpful benchmarks, what really matters is whether your debt is sustainable. Most financial experts recommend keeping your credit utilization ratio below 30% – meaning you’re using less than 30% of your available credit limit. If, for example, your credit card has a $5,000 limit, a balance of $1,500 or less is considered manageable.

If your balance is consistently over 50% of your limit – or maxed out – you may be at risk of damaging your credit score and facing mounting interest charges.

Is it okay to carry a balance?

Carrying a credit card balance occasionally isn’t unusual. But credit card interest rates in Canada average between 19% and 24%, which can make carrying debt extremely expensive. Here’s an example:

If you carry a $3,000 balance at 20% APR and only make minimum payments, it could take you more than 10 years to pay it off – and cost you over $3,000 in interest alone.

Warning signs you might have too much credit card debt

Even if your balance is “normal” compared to the national average, that doesn’t mean it’s financially healthy. Watch for these warning signs:

• Making only minimum payments each month
• Maxing out one or more credit cards
• Using one credit card to pay off another
• Avoiding your credit card statements due to stress
• Receiving calls from creditors or collection agencies

If this sounds familiar, it’s a sign your credit card debt may be more than you can manage alone.

What to do if you’re struggling with credit card debt

At Spergel, we understand how overwhelming credit card debt can be – but there are ways to take back control. Here are a few practical steps:

1. Create a debt repayment strategy

Use the debt avalanche method (pay off highest-interest debt first) or debt snowball method (pay off smallest balance first for motivation).

2. Try a balance transfer

Some low-interest or 0% balance transfer credit cards can help consolidate debt temporarily, but read the fine print carefully.

3. Consider a debt consolidation loan

This can simplify multiple credit card balances into one lower-interest payment – but only works if you stop adding new debt.

4. Speak with a Licensed Insolvency Trustee

If your credit card debt has become unmanageable, a Licensed Insolvency Trustee (LIT) is the only federally regulated professional who can offer all forms of debt relief, including solutions like a consumer proposal or bankruptcy.

Emma’s empowering journey to financial recovery

Emma found herself overwhelmed by credit card debt after losing her job during the pandemic. The financial strain led her to withdraw socially, feeling increasingly isolated from her friends and family who were often asking her to join expensive activities or dinners out. “Yes, I have withdrawn socially or isolated myself from friends and family,” she admitted, expressing the depth of her struggle.

Despite the odds, Emma sought help from Spergel. Through budgeting workshops and one-on-one consultations, she learned to manage her finances. Emma’s resilience shone through as she took control of her situation, eventually finding a new job. The relief of her financial burden allowed her to reconnect with her social circle and rebuild her confidence. Today, she uses her experience to encourage others:

“I used to let debt decide my happiness. Asking for help was the best decision I ever made.”

How Spergel can help

We’ve helped over 100,000 Canadians break free from overwhelming credit card debt. When you work with Spergel, you can expect:

• A FREE, no-obligation consultation
• Guidance from your very own Licensed Insolvency Trustee to walk you through the entire end to end debt relief process
• A personalized debt solution with no judgment
• Offices across Canada and virtual appointments available

Debt may be common, but that doesn’t mean it’s healthy

So, how much credit card debt is normal? The better question might be – is my debt manageable for me? If credit card payments are consuming your budget, causing stress, or keeping you up at night, it’s time to take action. You don’t have to do it alone. Book a free consultation with Spergel today and take the first step toward debt freedom.

What to read next

• How to pay off credit card debt
• Unpaid credit card debt consequences – what are they?
• Is my spouse responsible for my credit card debt?
• How to negotiate credit card debt settlement yourself in Canada
• How to get rid of credit card debt

Can you get a credit card after bankruptcy?

Absolutely – you can get a credit card after bankruptcy, but it will require time and effort to prove your financial responsibility. While bankruptcy remains on your credit report for up to six years after discharge, many lenders offer options for individuals looking to rebuild their credit, such as secured credit cards.

Is it a good idea to get a credit card after bankruptcy?

Knowing whether or not it is a good idea to get a credit card after bankruptcy is an important question. It may have been that credit card debt is what led to your bankruptcy in the first place, or perhaps you struggle to manage your credit card limits. You may simply be wary of using a credit card again for spending. This is where credit counselling sessions can help. Credit cards can actually be one of the most effective ways of rebuilding your credit, so long as they are used sensibly. If you get a secured credit card, do not overspend, and pay off the balance in full on time. It will indicate to banks and lenders that you are responsible with your money. 

How to get a credit card after bankruptcy

If it’s the right step for you, here are the key steps to securing a credit card after bankruptcy:

1. Wait until you’re discharged

Before applying for a credit card, ensure your bankruptcy has been fully discharged. A discharge means you’ve fulfilled your obligations, and your debts have been officially cleared. Lenders are unlikely to approve any credit applications until this step is complete.

2. Check your credit report

Obtain a copy of your credit report from Equifax or TransUnion Canada to confirm that your bankruptcy discharge is recorded accurately. Review the report for any errors or outstanding debts that should have been included in your bankruptcy and dispute inaccuracies if needed.

3. Start with a secured credit card

A secured credit card is the best option after bankruptcy. With this type of card, you provide a refundable security deposit, which serves as collateral and determines your credit limit. Secured cards are easier to qualify for since the deposit reduces the lender’s risk. Many reputable institutions in Canada offer secured credit cards, including:

• Home Trust Secured Visa
• Refresh Financial Secured Card
• Capital One Guaranteed Mastercard

4. Use your card responsibly

Once approved, use your secured credit card wisely to demonstrate financial discipline. Tips for responsible use include:

• Making small purchases and keeping your balance low.
• Paying off your balance in full each month to avoid interest charges.
• Avoiding missed or late payments, as these can harm your credit score.

5. Monitor your credit progress

Keep track of your credit score to measure improvement over time. Regularly checking your credit report can also help you identify areas to improve and ensure accurate reporting by creditors.

6. Graduate to an unsecured credit card

As your credit improves, you may qualify for an unsecured credit card, which doesn’t require a deposit. Focus on applying for cards designed for individuals rebuilding credit, such as those with low credit limits and modest annual fees.

How long after bankruptcy can I get a credit card?

The end of the bankruptcy process comes about when you are discharged, and you are finally able to enjoy life after bankruptcy. It is important to remember, however, that bankruptcy will remain on your credit report for six or seven years after your discharge. This is provided it is your first bankruptcy. This does mean that some lenders and banks will think twice should you apply for a loan or credit. The good news is that it is possible to apply for a credit card as soon as you are discharged from bankruptcy. Typically, it can take a couple of years to get an unsecured credit card, but this is dependent on the lender or banks to which you apply.

Tips for improving your credit after bankruptcy

Beyond using a credit card, there are other steps you can take to rebuild your credit after bankruptcy:

• Pay bills on time: consistently paying utility bills, rent, or phone bills on time can positively impact your credit score.
• Keep debt levels low: avoid accumulating new debt and aim to use no more than 30% of your available credit.
• Avoid multiple credit applications: applying for too many credit accounts in a short time can lower your credit score.

How to get a credit card after bankruptcy in Canada: FAQs

Here are some of the most common questions we receive about getting a credit card after bankruptcy in Canada:

How long does it take to rebuild credit after bankruptcy in Canada?

Rebuilding credit after bankruptcy in Canada typically takes several years. A discharged bankruptcy remains on your credit report for six years in most provinces. During this time, creditors may view you as a higher risk, but you can start improving your credit almost immediately by adopting good financial habits. Steps like obtaining a secured credit card, consistently paying bills on time, and keeping balances low can help rebuild your creditworthiness faster. Most people see noticeable improvements within two to three years if they focus on responsible credit use and financial planning.

Can you get a Capital One card after bankruptcies?

Yes, it’s possible to get a Capital One credit card after bankruptcy in Canada. Capital One offers secured credit cards, such as the Capital One Guaranteed Secured Mastercard, which can be a great option for rebuilding credit. This card requires a security deposit ranging from $75 to $300, depending on your credit profile. It helps you establish a positive credit history by reporting your activity to major credit bureaus. For those who qualify, Capital One also offers unsecured options like the Guaranteed Mastercard, which doesn’t require a deposit but has higher interest rates and stricter requirements​.

What if you’re rejected for a credit card?

It is possible to be rejected for a credit card after bankruptcy, but it’s important to remember that there is always a solution. At Spergel, you’re assigned your very own Licensed Insolvency Trustee to walk you through the entire bankruptcy process, and we can helpyou to understand your options when it comes to credit cards after bankruptcy. The reason for most rejections is because first bankruptcies remain on your credit report for 6-7 years. This is when your credit report is at its lowest, making it the hardest time to gain an unsecured card due to the risk for lenders. This is where alternatives like secured credit cards, prepaid credit cards, and online debit cards come in handy.

To learn more about how to get a credit card after bankruptcy in Canada, book a free consultation with a Licensed Insolvency Trustee at Spergel. We understand the challenges of rebuilding your finances after bankruptcy, and our experienced Licensed Insolvency Trustees (LITs) will guide you through the process.

What to read next

• Credit card consolidation: a guide
• Secured credit card: what is it?
• How to use a credit card responsibly
• How to pay off credit card debt
• Credit card minimum payments: how do they work?

How to use a credit card responsibly

Here are the steps we recommend taking to use a credit card responsibly and avoid accumulating credit card debt.

Understand your credit card terms

Before you start using your credit card, take the time to understand its terms and conditions. This includes:

• Interest rates: know the Annual Percentage Rate (APR) for purchases, balance transfers, and cash advances. This is essentially how much your credit card costs to use.
• Credit limit: be aware of your spending limit to avoid over-limit fees and potential credit score damage.
• Fees: familiarize yourself with any annual fees, late payment fees, and foreign transaction fees.

Create a budget

Creating a budget can help you to manage your spending and ensures you don’t charge more than you can afford to pay off. Here’s how to create an effective budget:

• Track your income and expenses: list all of your sources of income and fixed expenses (e.g. rent, utilities, groceries).
• Set spending limits: allocate a specific amount for discretionary spending and stick to it.
• Monitor regularly: review your budget periodically to adjust for changes in income or expenses. It’s a good idea to do this each month so you can ensure you’re staying on track and adjusting where needed.

Pay your balance in full

One of the most important rules for responsible credit card use is to pay your balance in full each month. This practice means you avoid interest charges, and by consistently paying your balance on time and in full, you demonstrate good credit behaviour and can improve your credit score.

Make your payments on time

Timely payments are crucial for maintaining a good credit score and avoiding late fees. To ensure you never miss a payment, we recommend setting up alerts (many credit card issuers offer reminders via email or text), and also automating payments for at least the minimum amount due each month.

Use credit cards for needs, not wants

Differentiate between needs and wants when using your credit card. Prioritize essential expenses, such as groceries and utility bills, over non-essential purchases like dining out or luxury items to avoid accumulating debt you can’t afford to repay.

Keep your credit utilization low

Credit utilization is the ratio of your credit card balances to your credit limits. Aim to keep your utilization below 30% to maintain a healthy credit score. If, for example, your credit limit is $1,000, try to keep your balance under $300.

Review your statements regularly

Regularly reviewing your credit card statements helps you to:

• Catch errors: identify and dispute any unauthorized or incorrect charges promptly.
• Track your spending: monitor where your money is going and adjust your budget if necessary.
• Stay informed: keep track of any changes to your credit card terms or fees.

Take advantage of rewards wisely

If your credit card offers rewards, use them strategically:

• Earn points: use your credit card for regular expenses like groceries and gas to earn points or cashback.
• Redeem smartly: use rewards for essential items or experiences that fit within your budget.
• Avoid overspending: don’t buy unnecessary items just to earn rewards.

Avoid applying for a credit card you’re unlikely be approved for

It’s easy to be tempted by new promotional offers or favourable interest rates that are often advertised for new credit cards. In fact, many of these rewards or deals are intended for those with good credit and high incomes, and those who will use their credit cards frequently. We all have a good idea of our financial situation, and the products we will likely or will not be accepted for. If you’re unsure, it’s a good idea to check your credit score via either TransUnion or Equifax to see how you are performing. If you have doubts about being accepted for a new credit card, the best thing to do is to not apply. This is particularly relevant for premium credit cards. If you apply and are declined, this can have a negative impact on your credit score, so you should stick only to credit cards you are confident you will be accepted for.

Be wary of low interest rates and APRs

Many credit card companies advertise low or 0% APRs and low interest rates to get you to open a credit card account. This can be appealing – if you have a balance on your credit card, you won’t have to worry about high charges, right? Unfortunately, this is not always the case. Usually, low or 0% APRs only apply to balances that are transferred. Any new purchase made using the card will have a higher APR. APRs and interest rates can increase if you make a late payment or if you go over your credit limit. If you get caught in any of these circumstances, your interest rate could increase drastically and you could receive a higher credit card bill than you expected. One of our top credit card usage tips is to read the fine print on any promotion involving low interest rates or low APRs. Paying your credit card balance off completely each month is the best way to avoid any interest fees and you will not have to worry about an APR at all.

Avoid foreign transaction fees

When travelling abroad, using credit cards is a great way to avoid carrying large amounts of cash. However, credit card usage often comes with foreign transaction fees – a charge from the credit card company when you make a purchase in a foreign currency. Your credit card company does not have to notify you of these as the terms are stated in your contract. They are usually around 3% of the total transaction cost, so they can add up quickly and be a nasty surprise on your statement when you return home. For this reason, it’s important to confirm your credit card company’s policies before you travel so that you know the best way to use your credit card abroad. Some credit card companies offer lower transaction fees or only charge them if you pay in local currency. Others don’t charge any foreign transaction fees at all. Our credit card usage tip is to ensure you are prepared for extra fees when you return from your trip.

Don’t use the cash advance

If you happen to use your credit card’s cash advance, it’s an extremely expensive way of getting to the credit you have on your credit card. In most circumstances, there’s a minimum fee for a cash advance of around $7.50, or 1%, whichever fee is greater. There’s also no grace period for a cash advance, so you’ll be charged interest as soon as you decide to withdraw it from your credit card. Cash advances themselves have interest rates as high as 25%, making it an unaffordable way to gain funds. Cash advances can also send signals to your credit company that you may be struggling financially, and it can therefore have a negative impact on your credit score also.

Limit the number of credit cards you have

While having multiple credit cards can increase your total credit limit and potentially lower your credit utilization ratio, it can also make managing payments more complex. Start with one or two cards and only apply for additional ones if necessary and manageable.

Keep your personal information confidential

If you reveal your information, you could be held responsible for unauthorized transactions. For this reason, it’s important to protect your data, including your card, PIN number, card security code, and your credit card password for any online transactions.

Speak to a Licensed Insolvency Trustee

If you find yourself struggling to manage your credit card debt, seek help sooner rather than later. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief, meaning they’re excellently placed to advise you on how to manage and reduce your debts. At Spergel, our experienced Licensed Insolvency Trustees have been helping Canadians to reduce their debts by up to 80% for 35 years.

What are the signs you’re not using your credit card responsibly?

You might be using your credit card irresponsibly, or living beyond your means, if you encounter any of the following situations:

• Your credit card balance is growing, not shrinking
• You’re reaching your credit card limit regularly
• You’re carrying a credit card balance from month to month
• You’re only making the minimum payment on your credit card, or missing credit card payments altogether
• You’re using your credit card to take out cash advances

If you often find yourself in any of the circumstances, you should take the following action:

• Stop using your credit card, if you can
• Avoid applying for any new credit cards because you’ve reached your credit limit on other cards
• Review your budget to discover ways to reduce your spending
• If you need to use credit, consider other less expensive credit options like a secured credit card or a line of credit

If you need further advice on using your credit card responsibly or reducing your credit card debt, book a free consultation with Spergel, the ‘get rid of debt’ people. Our reputable Licensed Insolvency Trustees have been helping Canadians gain debt relief for 35 years. No matter what your financial situation, we can work with you to review it and find the best debt relief solution for you and your needs.

What to read next

• Credit card payment holiday: all you need to know
• How to get rid of credit card debt
• Credit card consolidation: a guide
• How to negotiate credit card debt settlement yourself in Canada
• Fastest way to clear credit card debt – what is it?

What is a credit card minimum payment?

A credit card minimum payment is the minimum amount you must pay towards your credit card balance each month to avoid penalties, fees, and negative impacts on your credit score. This amount is typically a small percentage of your total balance, including any interest and fees that have accrued during the billing cycle. You’re typically obliged to make this minimum payment each month, and so if you don’t, you’ll find yourself facing a late fee in most scenarios. This, in turn, could even encourage your credit card issuer to increase your interest rate if you don’t make your minimum payments, also known as a penalty APR.

How is the minimum payment calculated?

Credit card companies use different methods to calculate the minimum payment, but it generally includes the following components:

1. A fixed amount – this could be a small fee of around $10 or a percentage of your balance, whichever is greater.
2. A percentage of your balance: typically, this ranges from 1% – 3% of your total outstanding balance.
3. Interest charges: any interest accrued during the billing cycle.
4. Fees: any additional fees, such as late fees or annual fees.
5. Past due amounts: if you have missed previous payments, the past due amount may be included.

If, for instance, your outstanding balance is $1,000 and your credit card issuer requires a minimum payment of 2% of your balance, your minimum payment would be $20. However, if you have accumulated interest and fees, these will be added to the minimum percentage, increasing your payment. You can understand how your credit card minimum payments are calculated in your cardholder agreement when you login to your account or take out the credit card in the first place.

Why do minimum payments matter?

It’s important that minimum payments are made for the following reasons:

1. To avoid late fees: making at least the minimum payment by the due date helps you to avoid late fees and additional charges.
2. To maintain your credit score: regularly making the minimum payment ensures that your account remains in good standing, which positively affects your credit score.
3. To prevent account default: failing to make the minimum payment can result in your account being marked as delinquent, leading to a higher interest rate, penalties, and potentially the account being sent to collections.

What happens if you only make credit card minimum payments?

While making the minimum payment keeps your account in good standing, it can also have several drawbacks:

1. A longer repayment period: paying only the minimum extends the time it takes to pay off your balance, potentially taking years to clear even a modest debt.
2. Higher interest costs: because most of your payment goes towards interest rather than the principal balance, you end up paying much more in interest over time, making it a much more expensive loan.
3. Increased debt load: if you continue to use your credit card while making only minimum payments, your debt can quickly grow, leading to a cycle of increasing balances and interest charges.

If, for example, you owe $5,000 on a credit card with a 20% interest rate and your minimum payment is 3% of your overall balance, here’s how two different payment schedules could look:

Ultimately, paying more than your credit card’s minimum balance means that you’ll have to pay less interest, and you’ll pay off your credit card at a much quicker rate.

Why you should make more than your minimum payments

It’s not always possible to make more than your minimum payment, which is fine provided it doesn’t become a permanent habit. Paying more than the minimum can have the following effects:

• Pay off debt quicker – significantly reduce the amount of time it will take to repay your credit card debt in full. In the example above, paying just $50 a month more can reduce the amount of time taken to repay the debt by 15 years.
• Reduce the amount of interest you pay – paying even $50 a month more can significantly reduce the amount of interest you accrue on your debt.
• Save your credit score – when your credit card balance grows, so too does your credit utilization rate. Poor credit scores can affect your ability to qualify for affordable loans and favourable credit card terms, and can even hinder your ability to secure a job or a rental apartment.

How to pay down your credit card faster

If you’re keen to pay off your credit card, we recommend the following tips:

1. Pay more than the minimum: whenever possible, pay more than the minimum amount due. This reduces your principal balance faster, saving you money on interest in the long run.
2. Automate your payments: set up automatic payments to ensure you never miss a due date. Consider automating an amount higher than the minimum payment to steadily reduce your debt.
3. Create a budget: a well-planned budget helps you allocate funds towards your credit card payments, ensuring you can pay down your balance more quickly.
4. Prioritize high-interest debt: focus on paying off credit cards with the highest interest rates first to minimize interest charges.
5. Use balance transfer offers wisely: if you have a high-interest balance, consider transferring it to a card with a lower interest rate. Be mindful of any balance transfer fees and the duration of the promotional period.

Credit card minimum payments: FAQs

Here are some of the most commonly asked questions we receive about credit card minimum payments:

What is the minimum payment on a credit card in Canada?

In Canada, the minimum payment on a credit card is typically calculated as a percentage of your outstanding balance, often ranging from 1% to 3%, plus any interest charges and fees that have accrued during the billing cycle. Additionally, if you have missed any previous payments, those past due amounts may also be included in your minimum payment. This minimum payment ensures that your account remains in good standing and helps you avoid late fees and penalties, but paying only the minimum can extend the time it takes to pay off your debt and increase the total amount of interest paid over time.

What is the minimum payment on a $5000 credit card?

The minimum payment on a $5000 credit card balance in Canada typically includes a percentage of the outstanding balance, usually around 1% to 3%, plus any interest charges and fees accrued during the billing cycle. For instance, if the minimum payment is 2% of the balance, it would be $100. Additionally, any past due amounts would be added to this payment. While making the minimum payment keeps your account in good standing and avoids late fees, it primarily covers interest and fees, making it challenging to reduce the principal balance significantly.

What is the minimum payment on a $3,000 credit card?

The minimum payment on a $3,000 credit card balance in Canada usually involves a small percentage of the total amount, typically ranging from 1% to 3%, in addition to any interest charges and fees accumulated during the billing cycle. For instance, if the minimum payment rate is set at 2%, you would owe $60. Past due amounts may also be included in this payment. While making the minimum payment ensures that your account remains in good standing and avoids late fees, it primarily covers interest and fees, making it challenging to significantly reduce the principal balance.

Does minimum payment affect credit score Canada?

Yes, making the minimum payment on your credit card in Canada can affect your credit score. While consistently making at least the minimum payment ensures that your account remains in good standing and prevents late fees, it doesn’t help reduce your debt significantly. Regularly making only the minimum payment may signal to lenders that you’re struggling to manage your debt, potentially impacting your credit utilization ratio and overall creditworthiness. Over time, high credit utilization and prolonged debt can negatively affect your credit score.

While making the minimum payment helps you avoid penalties and fees, it’s important to strive to pay more whenever possible to reduce your overall debt and save on interest. By implementing good payment habits and smart financial strategies, you can take control of your credit card debt and work towards financial freedom. For personalized advice and assistance, book a free consultation with one of our experienced Licensed Insolvency Trustees at Spergel, the ‘get rid of debt’ people – we’re here to help you navigate your financial journey.

What to read next

• How to use a credit card responsibly
• Credit card payment holiday: all you need to know
• How to get rid of credit card debt
• Credit card consolidation: a guide
• Secured credit card: what is it?

What is a credit card payment holiday?

Also known as a payment deferral, a credit card payment holiday is an agreement between a credit cardholder and their card issuer to temporarily suspend or reduce the minimum monthly payments on their credit card account. This measure is typically taken during times of financial hardship, such as a global pandemic, job loss, or other unexpected circumstances that make it difficult for individuals to meet their financial obligations. While a payment holiday may let you skip a payment, you may still pay interest. If your credit card lender is a federally regulated financial institution and they agree to a credit card payment holiday, they need to tell you if you will pay interest when skipping a payment. They will need to clearly state this when they make the payment holiday offer. You should make sure you truly understand the terms of your offer, and do not agree unless you are fully clear on what it means.

How does a credit card payment holiday work in Canada?

Here is how a credit card payment holiday typically works:

1. Eligibility check – in order to be eligible for a credit card payment holiday in Canada, you typically need to demonstrate that you are facing financial challenges. This could be due to job loss, reduced income, or other financial hardships.
2. Follow the application process – you should contact your credit card issuer or bank to inquire about their specific requirements and application process for a payment holiday. Most institutions have streamlined this process to make it easier for customers to request help.
3. Temporary suspension or reduction of your debt – if your application is successful, your credit card issuer will temporarily suspend or reduce your minimum monthly payments. This relief can provide some much-needed breathing room for your finances during challenging times.
4. Interest accrual – it is important to note that interest may continue to accumulate on your outstanding balance during your credit card payment holiday. This means that your overall debt may increase, even though you are not making regular payments. Make sure you clarify the terms with your lender to understand how interest will be handled.
5. Temporary relief – credit card payment holidays in Canada are typically temporary measures designed to provide short-term financial relief. They are not permanent solutions, and you will be expected to resume regular payments once the agreed-upon period ends.
6. Credit score impact – taking a credit card payment holiday should not directly impact your credit score. It is essential, however, to ensure that your account remains in good standing and that you continue to make any other required payments on time.
7. Clear terms – always carefully review the terms and conditions of the credit card payment holiday agreement with your lender. Make sure you understand how the relief works, the duration, and any potential implications for your credit and finances.

How to apply for a credit card payment holiday

Now that the deadline for pandemic payment holidays has passed, you can only apply for a payment holiday if your original agreement allows them. Even then, you need to follow an application process, and your credit card lender may choose not to approve your application. In order to apply, you will need to check your credit card agreement to see if a payment holiday is permitted, and then reach out to your lender. If they are willing to let you have a credit card payment holiday, the key is then understanding the terms of the agreement. You will need to ask how the repayment plan will work once the payment holiday ends so that you are fully equipped. Once you have all the information you need, you can then assess the benefits of a short term solution against the increased cost in the long run.

Credit card payment holiday conditions

In some scenarios, you could be denied a credit card payment holiday, even if your credit card agreement allows for them. This could be down to a few reasons, like the following:

• A recent credit card payment missed
• You are overdue on your credit card debt payment
• You cannot prove you can make your monthly payments going forward
• You cannot prove your income
• You are in a debt management plan
• You have previously been filed bankruptcy

Payment holiday alternatives

If you do not meet the eligibility criteria for a credit card payment holiday, fear not! There are plenty of other options to help you if you need temporary relief, or more of a long term solution. Similar approaches to payment holidays include deferrals, grace periods, pausing payments for a time period, or reducing the amount you pay each month. You might also want to speak to your credit card lender to see what your options are, but do note that if they will not grant you a payment holiday, they may not be willing to explore an alternative. If your lender does agree to one of these short term solutions, it is important to note that you will need to pay more in the long term due to interest accumulation. If you are struggling to repay your credit card debt and think you need more of a drastic solution, you should book a free consultation with a Licensed Insolvency Trustee. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. They are well placed to review your financial circumstances, and suggest a form of debt relief. Consumer proposals can reduce your credit card debts by up to 80% while enabling you to keep your assets, while bankruptcy offers a fresh financial future altogether.

A credit card payment holiday in Canada can be a valuable lifeline during times of financial hardship. If you want to learn more, or feel that you may need help in substantially reducing your credit card debt or eliminating it altogether, book a free consultation with Spergel. Our expert Licensed Insolvency Trustees have helped Canadians gain debt relief for over thirty years, and we are here to help you too.

What to read next

• A guide to your credit card utilization rate and why it matters
• How to get rid of credit card debt
• Credit card consolidation: a guide
• Secured credit card: what is it?
• How to negotiate credit card debt settlement yourself in Canada

*Based on a real client – for privacy, some details have been altered.

Meet Larissa

Larissa, a 36-year-old dedicated mother of two from Ontario, found herself in a challenging situation following a difficult divorce. Balancing her responsibilities at home and work as a part-time teacher became increasingly tough as financial pressures mounted. Despite her best efforts, the legal fees and the burden of managing a household on a single income pushed her into significant debt. Determined to provide a stable and secure future for her children, Larissa knew she needed professional help to navigate her financial crisis.

The Challenge

Following her challenging divorce, Larissa found herself burdened with overwhelming financial difficulties. With legal fees from the divorce, a mortgage to maintain, and daily expenses to cover on a reduced income, Larissa accumulated over $50,000 in credit card debt and personal loans. Despite her diligent efforts to budget and save, the mounting financial strain became increasingly unmanageable. Harassing calls from creditors added to her stress, leaving Larissa feeling trapped and uncertain about her financial future. She realized that without professional assistance, her ability to secure a stable financial footing for herself and her children would remain out of reach.

Solution

Seeking a way to regain control of her finances, Larissa turned to Spergel, the ‘get rid of debt’ people. She chose Spergel having noticed the company’s positive client reviews, testimonials, and the fact they’ve been assisting Canadians to gain debt relief for over 35 years. Working closely with an experienced Licensed Insolvency Trustee, Larissa explored her options and decided on a consumer proposal. This solution allowed Larissa to consolidate her debts into manageable monthly payments and significantly reduce the total amount owed. By formalizing her agreement through a consumer proposal, Larissa also gained legal protection from creditors, putting an immediate stop to the harassing calls and collection efforts. With the support and guidance of Spergel, Larissa was able to alleviate the stress of her financial burden and take proactive steps towards rebuilding her credit score and securing a stable financial future for herself and her children.

Implementation

Upon filing the consumer proposal with Spergel, Larissa’s journey to financial stability began with a detailed plan crafted by her Licensed Insolvency Trustee. Together, they negotiated with Larissa’s creditors to agree on a reduced total debt amount and structured manageable monthly payments. This formal agreement provided Larissa with the immediate relief of legal protection from creditor harassment. With the weight of constant calls lifted, Larissa focused on adhering to her new financial plan, diligently making payments and adhering to the terms of her proposal. Throughout the process, Spergel’s ongoing support and financial guidance ensured Larissa stayed on track toward achieving her goals of debt freedom and a secure financial future.

Results

Through Larissa’s consumer proposal with Spergel, she successfully reduced her total debt of over $50,000 by 50%, to a manageable amount. Larissa agreed to pay $500 per month towards her consolidated debts, significantly less than her previous obligations. This reduction in monthly payments alleviated the financial strain she faced as a single mother and part-time teacher. With the support of Spergel, Larissa not only gained immediate relief from creditor harassment but also set herself on a path towards rebuilding her credit score and achieving long-term financial stability. The structured plan provided by Spergel allowed Larissa to regain control of her finances and focus on providing a secure future for herself and her children.

Conclusion

Larissa’s success story with Spergel is a testament to the transformative power of proactive financial management. Facing overwhelming debt following a challenging divorce, Larissa found relief and stability through a consumer proposal that reduced her debt by 50%. With reduced monthly payments and legal protection from creditor harassment, Larissa was able to regain control of her finances as a single mother and part-time teacher. The support and guidance provided by Spergel not only eased Larissa’s immediate financial burden but also empowered her to rebuild her credit and secure a brighter future for herself and her children. Larissa’s journey demonstrates that with the right professional assistance, anyone can achieve financial freedom and peace of mind.

Client Testimonial

“I can’t thank Spergel enough for their support and expertise during one of the toughest times in my life. Their consumer proposal not only reduced my debt significantly but also stopped the constant stress of creditor calls. Now, I’m able to focus on providing a stable future for my children without worrying about money. And, I can now sleep at night! Spergel truly gave me a fresh start.”

– Larissa, Ontario

Are you also struggling in Larissa’s situation?

If this feels close to home, there are lots of ways we can help:

• Debt Consolidation and Management
• Budgeting
• Credit Counselling
• Debt Help

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Why did my credit score drop?

If you noticed a decline in your credit score, you are probably wondering why it happened. There are a number of reasons for this, including the following:

• You have applied for credit too often in the past year
• You are using over 75% of your credit limit
• You are overdue on debts which have been reported to the credit bureaus
• You have filed bankruptcy or a consumer proposal
• You have taken out a car loan or other types of loan
• A financial institution or credit bureau has run a credit check on your accounts

How to fix a bad credit score in Canada

There are a few steps you can take to fix a bad credit score in Canada:

Check your credit report

Firstly, you need to get hold of a copy of your credit report from Canada’s primary credit bureaus, Equifax and TransUnion. Legally, you can secure one free report from each once a year. Your first step should be to review the report for any errors or anomalies that may be having a negative impact on your credit score. If you discover any, you should speak to the credit bureau as soon as you can to have it corrected. You can request the following to be removed to help fix your credit score:

• Collections – if you can pay off the collections and request the creditors remove the notations from your credit report, this can help your credit score. This includes items like utility bills, phone bills, and parking tickets.
• Old negative information – negative information is due to be removed from your credit report in six to seven years, depending on your province of residence. This does not always happen automatically, so is worth checking on your credit report. If you have any late payments or bad debts older than this, you can ask to have them removed.

You may need to show evidence or receipts that prove any mistakes. Reviewing your credit report should help you to understand your score or financial situation. If you are still unclear, you should reach out to a Licensed Insolvency Trustee to understand what has gone wrong, and how you can go about reversing the effects.

Pay your bills on time

A key factor behind your credit score is your payment history. If you are paying your bills on time and in full each month, it suggests to banks and lenders that you are responsible financially, and are a reliable borrower. If you need help in remembering to make your payments, you should set up alerts or arrange automated payments to ensure you do not miss any payment deadlines. Creating good habits will help to restore your credit score.

Reduce your credit card balances

Reducing any balances owed as much as you can consistently will help to repair your credit score. Having high balances signals to lenders that you may be struggling financially or are overspending. A good aim is to have your credit card balances below 75% of your total credit limit. This is known as your credit card utilization rate. The debt snowball or debt avalanche methods are a good way for many Canadians to reduce their debts.

Avoid opening any new accounts

Every time you apply for new credit, an inquiry is logged on your credit report. It can lower your credit score for a period of time. In order to fix a bad credit score, you should therefore avoid opening new credit accounts, particularly multiple in a short space of time. Try to mend your current owed balances before turning to opening new accounts.

See if you can become an authorized user

If you have a loved one or friend with a good credit score, you may want to ask if they would consider adding you as an authorized user on their credit card. Often, their good credit history and limit can bring a positive impact on your own credit score. You should remember, however, that the primary cardholder needs to be responsible with their credit and any balances owing in order to avoid any negative effects of having a new authorized user on their cards.

Use a secured credit card

If you do not trust yourself to use an unsecured credit card, or have difficulty trying to secure one from a lender, a secured credit card is a great alternative. Secured credit cards require an upfront security deposit as collateral, making them a safer option for lenders. Secured credit cards will help you to rebuild your credit score over time provided you can make your repayments in full and on time.

Create a budget

Not having a budget can be a downfall for many Canadians. It can lead to overspending and credit problems. By creating a budget, you can understand clearly the savings and disposable income you have. It can stop you deferring to using credit cards, and can help you to build both savings and an emergency fund that is established at each paycheque you receive. Budgeting is key to financial stability and improving your credit score, although you do need to stick to it in order for it to work.

Catch up on any late payments

If you have overdue late payments, you should try your best to catch up. Late payments that are not dealt with will continue to appear on your credit report as overdue, which will make your credit score worse over time. If you are struggling to catch up, you can try calling your creditors to see if they can help you to get things back on track. Alternatively, a Licensed Insolvency Trustee can look at forms of debt relief like a consumer proposal to reduce your debt and help you to begin afresh.

Seek financial help

If you are up to your eyeballs in debt and do not know where to turn next, help is available. Licensed Insolvency Trustees in Canada are the only professionals legally able to file all forms of debt relief. This makes them well placed to review your financial circumstances and advise you on the best pathway to a fresh financial future. At Spergel, we have been helping Canadians gain debt relief for over thirty years.

If you are struggling with your debts and do not know what to do next, your best port of call is a Licensed Insolvency Trustee. Book a free consultation with Spergel today. Knowing how to fix a bad credit score in Canada will take time and requires commitment. By taking the measures above and working to clear your debts, your credit score will increase too. At Spergel, we are here to help.

What is a credit card utilization rate?

Also sometimes referred to as a credit utilization ratio, a credit card utilization rate is the revolving credit you are using, divided by the total amount of credit you have available and multiplied by 100. It is basically what you owe divided by your credit limit, as a percentage. An example is owing $5,000 on a credit card, but also a credit limit of $10,000. This means your credit utilization rate is 50%, and you are essentially using half of the credit available to you. As well as being able to work out an overall credit card utilization rate, you might wish to calculate it for each of your credit accounts, which is also known as a per-card ratio. Credit card utilization rates are an important factor used by credit scoring models to understand how trustworthy you are to repay the credit you owe.

Why is a credit card utilization rate important?

Credit card utilization rates form an important part of your credit score. Models will often consider it when calculating your credit score – in fact, it can impact up to 30% of a credit score, making it pretty influential. If you have a low credit card utilization rate, you are demonstrating that you are using less of your available credit. This generally sends the message to credit bureaus that you are doing well at managing your credit, and not overspending. This could help to lead to a high credit score, which in turn will make it easier for you to gain additional credit like a mortgage or car loan. If, on the other hand, you are using a lot of your available credit, the opposite message could be spent – you might be spending beyond your means, which could lead to a lower credit score.

What are the benefits of a low credit card utilization rate?

Here are the key advantages of being cautious of your credit card utilization rate, and keeping it as low as possible:

• Credit score: as explained, your credit card utilization rate forms an important part of your credit score. A low utilization rate can raise your credit score, and vice versa.
• Perception from lenders: when applying for new credit, lenders will look at your credit utilization rate to see how responsible you are with credit. If you have a high utilization rate, it may suggest you are facing financial difficulty. Lenders might think you are a riskier borrower as a result.
• Creditworthiness: having a low credit card utilization rate implies that you are responsible with your credit. It suggests that you do not rely on credit which is more desirable for lenders.
• Interest costs: a higher utilization rate will typically lead to a higher interest rate when you take out credit. Equally, if you have a high balance on your credit card, you will be charged more interest than you would for a lower balance.

What is a good credit card utilization rate?

Typically, a good credit card utilization rate is considered to be 30% or less. That said, the lower it is, the better. In order to maximize your credit score, you may want to aim to keep your utilization rate at 10% or less. If you had a $5,000 credit limit, this would mean keeping your credit card balance at $500 or less.

Tips for managing your credit card utilization rate

If you want to know how to better manage your credit card utilization rate and keep it as low as possible, we share our top tips below:

• Monitor your credit card balances so you are aware of the amount of credit you are using
• Rely less on your credit cards, unless you can repay in full – a debit card or cash are good alternatives
• Pay off your credit card balances in full and on time each month – this will also help you to avoid paying interest
• Spread out your spending across your credit cards so that you maintain a lower credit card utilization rate on each
• Do not close old credit cards. This can reduce the amount of credit available to you, and can increase your utilization rate. Keep them open to show a prolonged credit history
• Ask for a credit limit increase. Only do this if you are able to use credit responsibly, but doing so from time to time can lower your credit card utilization rate

It is a good idea to see where your credit score is at by checking your credit report – it is free to download once a year, and you can check any activity and changes in your credit card utilization rate. Although your rate may be difficult to lower straight away, by consistently applying the above tactics, you can reduce it over time.

Understanding your credit card utilization rate is important for improving your credit score and financial circumstances in general. Keeping it low can help you qualify for more credit, and save on interest on any balances you owe. If you are struggling with your credit score and want advice from the experts, book a free consultation with Spergel. Our experienced Licensed Insolvency Trustees have been helping Canadians gain debt relief for over thirty years, and we are here to help you too.

What to read next

• What is a creditor?
• How to get rid of credit card debt
• Consumer proposal vs credit counselling: which is best?
• Credit repair after bankruptcy
• How much debt is too much in Canada?

How does credit card debt rack up so fast?

It is no secret that credit card debt can be difficult to manage. It is, after all, a revolving kind of credit. This means that you can borrow funds as and when you need them. Doing so can make your repayments difficult – they will vary each month depending on what you have spent, and so if the balance is high it can be more difficult to repay. Many Canadians can end up in a credit card debt cycle whereby they live paycheque to paycheque, with any expenses going on credit card. Credit cards also come with notoriously high interest rates. If your balance is not paid in full each month, you will soon begin to accumulate interest charges on top of your debt. This can make repaying your credit card debt much more difficult as time goes on. Repaying hefty credit card debts just by making your minimum payment is very difficult to do and can take years. For this reason, it is best to confront your credit card debt as soon as you can by finding an appropriate debt relief solution.

How to negotiate credit card debt relief yourself

When it comes to negotiating credit card debt relief yourself, we refer to speaking with your credit card lender to negotiate on the interest rate you are being charged. By lowering this rate, more of your monthly payments can go towards paying off the principal of your debt instead of the interest fees. There is no obligation for credit card companies to agree to this. You should also be careful about the timing you choose to negotiate. The best time will be when your credit card balances are low, and you are current on your payments. It is worth a try as you have nothing to lose. Negotiating is usually only best if you are behind on your payments – if you need your credit card debt cleared, one of the debt relief options below is your best bet.

How to reduce or clear your credit card debt

If your credit card debt is beyond late and you simply cannot keep current on your minimum payments, you likely need support. No matter of negotiation will help in this scenario, as you likely need to reduce or eliminate your credit card debt altogether. The sooner you seek out the support of a Licensed Insolvency Trustee, the likely the more options you will have available to you. Make sure to find reputable experts to help. At Spergel, we have been helping Canadians to gain debt relief for over thirty years. Below, we have listed some of the most popular methods of gaining credit card debt relief.

Debt Management Program (DMP)

A Debt Management Program – or a DMP for short – is a structured repayment plan provided to you by a credit counselling agency. The goal is to condense your unsecured debts – including credit card debt – into one simple monthly payment. It is ideal for those who just need some temporary relief on their payments, or support in structuring their debt. There is no need to borrow any additional funds – you simply work with a credit counsellor to determine a realistic budget. This will then help to determine a reasonable amount of repayment you can afford each month. Your credit counsellor will then attempt to negotiate with your creditors to have their debts added to the Debt Management Program with the interest rate reduced where possible. If they agree, you will work on repaying your debts within three to five years. Although DMPs work for many Canadians, it is important to note that creditors are not legally bound to agree unlike consumer proposals. DMPs will also have an impact on your credit score.

Orderly payment of debt program

If you live in either Alberta or Nova Scotia, you might be eligible for consolidation via an orderly payment of debt program. Although other provinces used to offer an orderly payment of debt, this has recently stopped due to the rise of credit counselling and non-profit support. In an orderly payment of debt program, you repay the full amount of debt that you owe. This usually takes place over a period of around three years. The interest rate on your unsecured debt is fixed at 5%. Your creditors are obliged to agree to it, and the courts must approve the program. Another advantage of an orderly payment of debt program is that you are able to keep your assets.

Consumer proposal

It may be that you need a legal form of debt relief to substantially reduce your unsecured debts. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. A consumer proposal is a legal form of debt settlement. When it comes to how to get rid of your credit card debt, it can reduce your debt by up to 80%. You work with a Licensed Insolvency Trustee to suggest an affordable monthly repayment to your creditors. Your Licensed Insolvency Trustee will then work to negotiate with your creditors on your behalf. If accepted, you will only need to make your manageable monthly repayments for a period of up to five years. Other advantages of a consumer proposal include the ability to keep your assets and protection from your creditors via a stay of proceedings. At Spergel, we have a 99% acceptance rate on any consumer proposals we file. This means that you have a 99% chance of having your debt reduced by up to 80% if you file a consumer proposal with us.

Bankruptcy

If filing a consumer proposal is not the right option for you, and you would prefer complete clearance of your unsecured debt, filing bankruptcy may be the right form of debt relief for you. Bankruptcy is the process of assigning any non-exempt assets you may have over to your Licensed Insolvency Trustee in exchange for clearance from your debts. These assets will then be sold with any proceeds going towards the repayment of your creditors. Bankruptcy is the best way to achieve a fresh financial future, and it is often much quicker than a consumer proposal. Other advantages of bankruptcy include protection from your creditors, and the ability to keep some essential assets under a threshold laid out by your province of residence. Unlike other bankruptcy firms, at Spergel, you are assigned a Licensed Insolvency Trustee to support you every step of the way through the bankruptcy process, instead of being passed from person to person.

If you want to know how to get rid of credit card debt but are feeling overwhelmed by your options, book a free consultation with a Licensed Insolvency Trustee at Spergel. We will review your financial circumstances and recommend a debt relief pathway for you. Having helped over 100,000 Canadians gain debt relief, we are well placed to help you on your journey to getting rid of your credit card debt.

When is credit card consolidation a good idea?

There are a number of reasons to consider credit card consolidation:

• It is increasingly difficult to stay on top of your monthly credit card payments, particularly with a rising cost of living
• High interest rates on top of credit cards are costing you more
• You are living paycheque to paycheque and paying off your credit cards with other forms of debt
• You cannot stop on top of all of your debts, leading to missing payments
• You are reverting to payday loans to help with debt problems or payments you cannot afford

These are a few examples of instances where a credit card consolidation may help to simplify and reduce your payments.

What is credit card consolidation?

Credit card consolidation is the process of taking out a new loan in order to condense multiple credit card debts into one. The funds from the new loan pay off the other separate credit card debts which are then closed, and you are left with just one payment to make each month. Debt consolidation loans typically have a lower interest rate than the other individual credit card debts you have will charge you. You might even find more preferable terms and conditions, like longer repayment periods to lower each monthly payment you make. It simplifies your finances to make debts feel less overwhelming. Before you take out any credit card consolidation loan, you must be sure you can budget effectively to pay off your loan, otherwise it could actually end up increasing your debt. Equally, if you are behind on your credit card payments, it could be difficult to secure a debt consolidation loan – in this scenario, you may want to consider a debt relief alternative like a consumer proposal.

What are the pros and cons of consolidation?

Credit card consolidation comes with a range of pros and cons. Here are the pros:

• A single, simplified monthly payment
• Often a more favourable interest rate, or elimination of an interest rate
• Sometimes payments can be reduced and spread across a longer period of time

Here are the cons:

• You need to qualify for a new debt consolidation loan
• If you cannot budget for your payments effectively, your debt could become worse
• Debt consolidation loans often require collateral, which can put huge assets like your home at risk

Types of credit card consolidation

In Canada, there are a few different types of credit card consolidation. Each is suited to different individuals depending on their financial circumstances. Here is a breakdown of the most popular types:

Credit card balance transfer

It is possible to take out a new credit card and consolidate any existing credit card debts into the new one. Advantages of this include benefiting from promotions that come with credit cards, although these can come with terms and conditions to be aware of. Credit card balance transfers can be flexible too – you can tackle your credit card debt, but if you have a financially challenging month you could always revert to simply making your monthly payment. One thing to be aware of with this method is that even if a new credit card has a low interest rate when consolidating existing debts, the low rate may not be applicable to any new purchases. You will also need to commit to being able to make each of your monthly payments, otherwise you could find yourself facing fees and mounting debt.

Advantages of a credit card balance transfer:

• Flexible payments
• Initial low interest rate

Disadvantages of a credit card balance transfer:

• You must be eligible for a new credit card
• It could elongate the time you are in debt
• Promotional interest rates might garner your interest but they can expire quickly
• Subsequent interest rates can be very high

Home equity line of credit

A second mortgage or a home equity loan is when you borrow against any equity you have in your home and use it to pay off debt. Before you increase your mortgage, take out a second mortgage with a higher interest rate, or apply for a home equity loan, you should speak to a Licensed Insolvency Trustee. As the only professionals in Canada legally able to file all forms of debt relief, they can share any other options available to you, which may be able to reduce or eliminate your debt instead of adding to it.

Advantages of a home equity line of credit:

• Low interest rate if taken out via a financial institution or credit union
• Flexible payment scheduling

Disadvantages of a home equity line of credit:

• High fees and high interest rate if taken out via a subprime lender
• Requires sufficient equity in your property

Informal debt settlement

When you are struggling financially and you do not think it will get better in the next few years, you may want to consider a settlement if you have a lump sum of cash available. A debt settlement is an arrangement you negotiate with your creditors to pay back less than the full amount you owe, often via a one off lump sum. Because you are paying upfront, creditors will sometimes agree to eliminate the remaining credit card debt. This means you can pay less than the full amount owed and become free from the debt. It is worth noting that not all creditors will accept this approach, and you would need to have the cash ready immediately. An informal debt settlement is also not guaranteed, so you should try to get any agreement in writing where possible. Even then, a creditor is not tied to it legally.

Advantages of an informal debt settlement:

• Potential to repay less than you owe
• If creditors agree, you can gain instant debt relief

Disadvantages of an informal debt settlement:

• Creditors need to agree to a negotiation
• No formal agreement, meaning creditors are not bound
• Lump sum required before an offer is made
• Credit rating can be affected for years

Consumer proposal

A consumer proposal is a legal form of debt settlement, which can reduce credit card debt by up to 80%. Filed through a Licensed Insolvency Trustee, filing a consumer proposal is the process of putting forward an affordable monthly payment figure to your creditors. Your Licensed Insolvency Trustee will help to negotiate with your creditors on your behalf. A popular bankruptcy alternative, if your creditors accept your proposal, you only need to repay the agreed amount for a period of up to five years. Other advantages of a consumer proposal include receiving full protection from your creditors, and relief from the stresses associated with overwhelming credit card debt. At Spergel, we have a 99% acceptance rate on any consumer proposals we file, which means you have a 99% chance of reducing your debts by up to 80%.

Advantages of a consumer proposal:

• Interest and penalties are frozen
• Reduction in your credit card debt by up to 80%
• Protection from your creditors via a stay of proceedings
• Collection on student loan debts paused
• Avoids bankruptcy

Disadvantages of a consumer proposal:

• Consumer proposals are a permanent public record
• A negative impact on your credit report for up to around 8 years
• If you miss more than 3 payments, your consumer proposal is finished and you cannot file another

If you are unsure of which form of credit card consolidation may be best for you, book a free consultation with a Licensed Insolvency Trustee at Spergel. It can feel overwhelming choosing a form of debt consolidation, but we can guide you through the process by reviewing your financial situation and advising you on the best recommendation for your circumstances. Reach out today – you owe it to yourself.