Credit cards. Whether or not you have good feelings about them most Canadians need to use them in order to start building their credit. With credit card perks that include things like cash back, travel points, and free movies, making everyday purchases on a credit card can be rewarding. However, failing to pay off your credit card purchases or giving in to the temptation to spend money you don’t have can lead to painful consequences.
On April 4 details on a study on household debt performed by Statistics Canada were released. Between 1999 and 2016 the average non-mortgage household debt of homeowner families was $18,100. Additionally, households with a positive outlook for the future held an average of $6,800 more in non-mortgage debt compared to other households. This means that families with positive expectations for the future were more likely and willing to overspend and/or take on more debt prior to an anticipated pay raise.
Credit Card Consolidation
If you are an individual or a family with more than one credit card and you’re also struggling to make your minimum payments it’s time to consider consolidation. Credit card usage can be a risky game to play if you don’t already have the funds available in your bank account in order to pay off credit card transactions right away. This is because you may expect the money to come later, but there is no real guarantee it will come when you planned, if at all. If this happens you can miss payments, incur ever increasing amounts of interest, and wind up with a drastically higher interest rate than you started off with. When this happens it can become harder and harder to pay down what you owe.
The first step is to take a good look at all your credit card debt. Face it head on. It may be painful, but once you know exactly what you’re dealing with you can make a realistic plan to tackle it. Credit card debt consolidation means lumping all your credit card debt into one large sum and transferring it to a consolidation tool like a line of credit, a low interest or balance transfer credit card, or a home equity line of credit (HELOC.) These tools have very low interest rates and sometimes offer a short term rate of 0%. This means you’ll get 3-6 months when you can make interest free payments.
Once you’ve chosen which tool you want to use your minimum payment will likely be less than all your previous payments combined. However, if being debt free is your goal it is wise to make the biggest payments you can. The more you pay the quicker you’ll be debt free. Plus, any extra payments you make will be penalty free.
The temptation with debt consolidation tools is that it’s easy to keep spending and maxing out your available limit. Don’t fall into this trap! The interest rate may be lower than your credit card rate, but you’ll be incurring interest regardless. Be honest with yourself. If you know you’re likely to keep spending any available credit then do yourself a favour and close your credit card accounts. You can even deactivate your line of credit so that you can make payments but you can’t use the available balance.
If you’re really serious about paying off your debt then print out your payment plan and put it up somewhere you’ll see it every day. Keeping this plan in mind will help you to stay on target. In addition, ask yourself how and why you ended up in debt to begin with. Until you can answer and solve that problem you’re bound to end up in debt again and again.
To find out which debt consolidation tool is best for you contact us today!