How To Reduce Credit Card Debt? It’s All About BalanceJun 24, 2016
When do you see yourself being debt free? Are you frustrated with your inability to reduce your credit card debt? According to an Ipsos-Reid poll on behalf of BDO Canada, nearly one in four Canadians said they don’t think that being debt free will ever happen. As household debt continues to reach record levels and credit card debt is at a three-year high, there are many Canadians who feel that their personal debt is preventing them from saving for retirement, adding to emergency funds and achieving overall economic security.
Is it possible to achieve a healthy balance between your obligations to pay off your debt and your need for retirement savings, a rainy day fund, and other necessities of life? Here are a few tips that could potentially have you paying off your credit card debt faster, which can help you achieve a better debt-life balance.
The first step to help reduce your credit card debt is to stop using your credit cards. That may seem simplistic, but if you have credit card debt, every time you use your cards — especially if you are using them as a means of borrowing — you’re adding to your debt. If you need to use your credit cards because your expenses are greater than your total income it’s a good idea to seek debt assistance as soon as possible. A credit counsellor or a Licensed Insolvency Trustee can review your situation and explore debt relief options that will help you deal with your credit card debt.
If you are carrying a high amount of credit card debt on a single card or across a number of cards, consolidating your debt is another good option to reduce credit card debt more quickly. There are two ways of going about it. If you have multiple credit cards you can look to consolidate that debt onto a single credit card, but make sure to ask if the card you are consolidating into charges a cash-advance fee for paying off the other cards. Cash advances tend to have interest rates well into the mid-to-high twenties.
A better option and one that will also help you get rid of credit card debt altogether is a debt consolidation loan from your bank or any major financial lender. Your credit card balances are paid off with a consolidation loan, which should have a lower interest rate. That lower rate means a lower monthly payment. Another benefit of a consolidation loan versus consolidating from one credit card to another is you will have a fixed end-date of when the loan will be paid off. Revolving credit debt can let you accumulate the debt after you’ve worked so hard to pay it off.
Your personal or family budget will be a key tool in helping you stay on track with reducing your debt. If there is additional money available in your budget after covering all the mandatory bills like mortgage or rent, groceries, utilities, debt payments, etc., allocate as much as you can towards extra debt payments and savings contributions. A debt repayment method like the debt avalanche or debt snowball can help you in taking a focused path towards paying off debts faster. Your budget will also help you identify if your debt issues require professional debt help. If you are running a deficit on your budget you will want to look at how debt relief options can help you get your debt under control.
By reducing your credit card debt, you are taking steps to improve your financial security for the future. Once your debt is reduced, you should have the ability to balance your debt obligations with regular contributions to short- and long-term savings goals like a home renovation, a vacation fund, RESPs, retirement savings, and an emergency fund. You’ve achieved debt-life balance.
Have you been successful in your efforts to reduce or pay off your credit card debt? Share your tips with others. #LetsTalkDebt.