It is all too easy for many of us to rack up credit card debt in Canada. In fact, recent research carried out by Equifax suggests that the average Canadian has $21,128 in debt in Q2 2022. There are many ways to pay off credit cards, but for each method it is important to consider which is the best method for you. It is important to pick the method that will best motivate you to keep repaying your credit card debt. In this article, we explore some of the best ways to pay off credit cards, whether you need a motivational boost or want to reduce your interest rate payments as much as possible. When it comes to the best way to pay off credit cards, the important thing to remember is that simply making the minimum payments on your credit card debt will keep you trapped in a cycle. While paying off credit card debt can be challenging, it is certainly not impossible to do. A plan and the right attitude can help you get there sooner. Without further ado, here is the best way to pay off credit cards.
Pay over your credit card minimum payment
Of course, credit card minimum payments vary somewhat depending on the financial institution you are borrowing from. Typically, minimum payments will vary between 1-3% of the outstanding balance. This information is provided in the small print when you sign up for your credit card, and it is something you should always consider before committing. Of course, having an affordable minimum payment often makes taking out a credit card much more attractive. You may think that you can simply pay this off each month and worry about the remaining balance at a later date. Yet in doing so, it can quickly spiral to rising interest rates and make your originally affordable debt much more challenging to pay. By instead learning how to budget and cutting down your expenses, you can put your additional funds towards repaying your credit card debt.
Make additional credit card payments
The more you are able to put towards your monthly payments, the sooner you will repay your credit card debt – plain and simple. There are two popular methods for repaying credit card payments:
Debt snowball method
The debt snowball method focuses on paying off your smallest credit card debt first, while making the minimum payments on all your credit cards. The logic behind this method is that it creates motivation by tackling the low hanging fruit first of all. Once the smallest credit card debt is paid off, you will then use any extra funds towards the next smallest balance, until they are all paid off. The debt snowball method is a great option for anyone with multiple smaller credit card debts to pay off. It enables you to see progress quickly, although you may pay off more overall because you are not focusing on the interest rates.
Debt avalanche method
With the debt avalanche method, you start by paying off your credit card debt with the highest interest rate. This is in the interest of paying off your most expensive debts first, allowing you to save money over time. You will begin by making the minimum payments on all of your credit card debts. You will then use any additional funds you have to pay off the credit card balance with the highest interest rate. Once this is paid in full, you will move onto the next highest interest rate debt. You continue this process until all of your credit card debts are paid off.
Choose a credit card with a lower interest rate
Interest rates are half the battle when it comes to racking up credit card debt. This is even more so if your credit card has a high interest rate, and these days rising interest rates are a regular occurrence. With a high interest rate making it even more difficult to pay off your debt, you should switch to a credit card with a lower interest rate. Often, banks will offer promotional deals with 0% or low introductory interest rates. This could work for you by transferring across your balance and paying as much as you can each month. This can be one of the best ways to pay off credit cards. Even if you switch, you should still ensure to pay off as much of your credit card debt as possible, and not accrue greater debt on another.
Spread out your credit card payments
Taking out an instalment plan can be a valuable way to make your credit card debt more manageable. Instalment plans allow you to pay off large credit card purchases in monthly payments, often at a lower interest rate than your credit card offers. This enables you to better budget your spending, and make your repayments at a pace that works well for you. Many financial institutions offer instalment plans. They also enable you to use the benefits on your credit card, including travel rewards and insurance coverage.
Choose a consolidation loan for your credit card debt
Debt consolidation is the process of condensing all of your separate debts into one new loan. It is essentially refinancing in order to simplify paying off various outstanding debts. It has a number of advantages. Firstly, it helps you to organize your monthly payments and also simplify your debt. Often, debt consolidation loans will also reduce your overall interest rate. You can choose to apply for a debt consolidation loan in order to make monthly payments, or open a line of credit and use it to pay off your outstanding loans. To secure a debt consolidation loan, you must have a steady source of income, and be able to make your payments inclusive of interest. Debt consolidation loans can help you to budget and it is often possible to spread them across a longer time period.
Speak to a Licensed Insolvency Trustee
If you feel that your credit card debt is becoming too much to handle, 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 to solve your financial problems at their root cause. They can also help you to rebuild your credit score and begin a fresh financial future. Two of the most popular forms of debt relief in Canada are to file a consumer proposal or a bankruptcy. Both of these methods of debt relief are considered the fastest ways to clear credit card debt.
Filing a consumer proposal
A consumer proposal is a legal form of debt settlement regulated by the Bankruptcy and Insolvency Act, and an excellent bankruptcy alternative. It is the process of putting forward an affordable monthly repayment figure to your creditors, with your Licensed Insolvency Trustee acting on your behalf. It is able to reduce your unsecured debt including credit card debt by up to 80%, while empowering you to keep your assets. Other advantages of a consumer proposal include immediate protection from your creditors via a stay of proceedings, putting an immediate stop to collection calls and wage garnishments. At Spergel, we have an acceptance rate of 99% on any consumer proposals we file.
Filing bankruptcy
Bankruptcy is the process of gaining a fresh financial future by clearing any unsecured debts that you are unable to pay, including credit card debt. When filing bankruptcy, you assign any non-exempt assets over to a Licensed Insolvency Trustee in exchange for the clearance of your debt. Contrary to popular belief, you do not lose everything when you file bankruptcy. In fact, provided you are able to continue to make payments on your secured debts, you can file bankruptcy and continue to keep your car and home. Although bankruptcy can seem like an intimidating process, our Licensed Insolvency Trustees will approach your situation with compassion. Unlike other bankruptcy firms, you will receive your own dedicated trustee to walk you through each step of the bankruptcy process.
Carrying credit card debt can have a number of consequences on your financial future, from paying high amounts of interest, affecting your credit card score, and eating into your savings. At Spergel, we will help you find the best way to pay off credit cards and to get smarter with your spending. Book a free consultation with the experienced team at Spergel – you owe it to yourself.