Back in March, the credit rating agency Equifax Canada found that non-mortgage debt (credit cards, loans, lines of credit) amounted to $23,800 at the end of 2019.
Despite this, a Bank of Canada survey taken in 2019 stated that, 70 percent of Canadians pay off their balance in full every month.
Even though technically Canadians are good at paying off credit card debt, many financial managers note that, in times of crisis the first thing that most might put off paying is a credit card bill.
Credit card as a financial tool
First, let us be clear, a credit card is a good financial tool. When used wisely a credit card is a convenient and handy way to make payments for things that we need and for things that we want.
One way that credit cards can help make budgeting easier is when you allow for online and automated payments. For example, you can make sure that your utility bills are always paid on time by enrolling in online billing programs via your credit card.
There are also times when paying for big ticket items via installment with a good credit card is a better deal than paying with cash. If you don’t have the cash on hand, for example, there’s your credit card to pay for medical bills or for a new computer on an installment plan.
Another reason many people love using their credit cards to make purchases is because of the reward programs the credit card companies offer. The ability to earn reward points, cashbacks, or get special discounts make paying for items using a credit card more appealing.
How does credit card debt happen?
Using a credit card can save you time and money, but like any financial tool, you need to use it correctly.
Remember, using a credit card only defers you having to pay for an item, you are in a sense using someone else’s money – the credit card company’s -money. Eventually, you will need to pay that money back by paying your monthly credit card bill.
Making a monthly budget and sticking to it is a crucial part of staying out of debt, and this doesn’t change if you use a credit card to pay for most of your essential and non-essential purchases.
You need to be aware of how much you are charging to your credit card and make sure that it still fits your monthly budget. In other words, ensure that you will have enough cash on hand at the end of the month to pay the credit card bill.
What happens if I can’t make the monthly bill?
The problem with credit card debt is the longer you don’t pay, the more the debt will grow.
Credit card companies charge an interest rate and impose late payment fees if you don’t pay your credit card bill on time. So if you don’t pay your credit card bill for a particular month, aside from the charges incurred for the following month, you will have to pay the previous month’s charges plus interest and late payment fee.
So this is how credit card debt debt eventually increases and become more and more difficult to pay off.
How to get credit card debt relief
1. Negotiate with your credit card company
This means asking the credit card company if they can lower the interest rate on your debt. This can help you make your payments as, with each payment made, a bigger chunk of your debt gets paid off.
You can also get a credit counseling agency to help negotiate with your credit card company, this might be the best option as they can also help you best plan to pay off your debt quicker.
2. Enroll in a debt management program
You can do this after talking to a credit counseling agency, you will be assigned a credit counselor who will look at your debt and your financial status and help determine how much you can afford to pay to your credit card company while still being able to meet your needs.
Your credit counselor will also negotiate with your credit card company on lowering your interest rate and maybe waiving late fees.
3. Enroll in debt settlement
Your credit counselor might also determine that debt settlement is the best way to pay off your credit card debt. Here, they will negotiate with the credit card company and get them to agree that you can pay only a certain portion of your debt and the rest will be written off.