Has your credit card debt grown to the point where it doesn’t feel like the minimum payments actually pay anything down anymore? Does it feel like you're just treading water, not getting anywhere? Maybe you've been using your credit cards as a financial lifeline, your cards are maxed out, and you want to know how to either consolidate, get more credit, get interest or debt relief - or something that will be able to help you. Here we'll provide you with an overview of options and solutions that can help you. With the right help and advice you should be able to put together a plan to get your finances back on track and get out of debt in a reasonable time period.
Here are six ways you can deal with your credit card debt either on your own or by taking using a debt relief program. The first two options are approaches that can help you pay off your credit cards as quickly as possible on your own. The next two require you to work out a better arrangement with your creditors, and the last two are debt relief programs where other people deal with your creditors for you.
With the snowball credit card paydown strategy, after you make minimum payments on all of your debts, your debt with the smallest balance is the one you single out to pay all the extra money on that you can find. Once it’s paid off, you take the money you were paying towards it and put that money towards your debt with the next smallest balance. As you work your way from smallest balance to largest balance you gain momentum - like a snowball that gets bigger and bigger, your payments get bigger and bigger.
The advantage of the snowball method is that you quickly see the benefit of your hard work. Paying that first debt off feels good, and the success motivates you to keep going.
The avalanche method works much the same way as the snowball method does, but the debt you choose to focus extra payments on is the one with the highest interest rate (even if it has the lowest balance owing). By paying off your highest interest debt first, followed by the next highest one, the third highest, and so forth, the money you save on interest is put towards paying off your debts.
With credit card interest rates coming in on average between 19% and 30%, you will pay less interest overall by using the avalanche over the snowball method. However, many people find they're more motivated by the snowball method since it feels like they're making faster progress and actually getting things paid off. Choose the method that you think would work best for you.
You can approach your bank or credit union and see if they can help you put together a consolidation loan. If you have equity in your home, taking out a second mortgage might be a good option too. There are two things to watch out for with this option:
Before going down this path, feel free to talk to one of our experienced Credit Counsellors. They'll go over all you options with you and help you put together a realistic budget and a plan to get out of debt.
Negotiating credit card debt relief means asking your credit card companies to lower the interest rates they are charging you. With a lower interest rate, if you are carrying a balance, you end up paying less interest. This means that with every payment you make, more of your balance gets paid off rather than being gobbled up by interest charges.
The best time to negotiate the interest rates on your credit cards is when you have low balances and you’re still up to date with your payments (if you have high balances or are behind on your payments, the next option on this list may be your better option). If you want to know the best way to call up your credit card company and ask them to lower your rate, Squawkfox.com has some great step by step instructions. They even give you a script to use when talking to your credit card company. Try it! You’ve got nothing to lose.
This avenue can actually encompass three seperate options:
A Debt Management Program consolidates all your credit card payments into one monthly payment that fits your budget. Interest rates are eliminated or substancially reduced. This option is private: only you and your creditors know about it.
Orderly Payment of Debts also consolidates all credit card payments into on payment, and all interest rates are reduced to 5%. However, since this option involves a legal process, there is a permanent public record.
A Debt Settlement typically only works if you haven't made payments on your debts for a while and have a lump sum of cash to offer to settle your debts for less than their full value.
To find out if any options like these might work for you, make an appointment to speak with one of our Credit Counsellors. They'd be happy to look at your situation with you and see what your options look like.
A Consumer Proposal allows you to repay less than you owe over a number of years. Depending on the type of debts you have and your overall circumstances, it could be a viable option for you. However, since it's a legal process, it can have long-term ramifications. Speak with one of our qualified Credit Counsellors to determine if this option may be appropriate for you.
Bankruptcy of course can allow you to walk away from your unsecured debts if they've become to much for you. Again it's wise to speak with a Credit Counsellor to make sure you don't have any other options before heading down this path. Bankruptcy can work well for some, but for others it can be more expensive or detrimental than other options.
As you can see in Canada, there are many ways you can tackle credit card debt. Some options can work quickly and be very effective, while others can take more time and require more financial discipline. Choosing the option that’s best for you is something you should do carefully. One way you can make the process much easier for yourself is by speaking with one of our accredited Credit Counsellors. They can help you put together a budget, see what you can realistically afford to pay towards your debts after allocating a reasonable amount to your living expenses, and then help you look at your options to eliminate your credit card debt as quickly as possible while positioning you to achieve your long-term financial goals. There help is always free, non-judgmental, and completely confidential. You can speak with a Counsellor by phone or in person - whichever is best for you. Give us a call and make an appointment to speak with one of our Credit Counsellors at 1-855-232-4888. You've got nothing to lose but your debt.