Credit cards. Love em. Hate em. Probably both. In any case, most Canadians hoping to start building their credit need to use one. Lenders have made credit card usage more and more attractive with the invention of spending perks like travel rewards and cash back. If you have the self-control to use a credit card as a tool you’ll get the most out of it. But if you have a tendency to spend before you can afford it, forget to pay off your balance, or don’t plan ahead, you’ll find yourself learning the painful lesson taught by credit card interest.
On April 4 this year Statistics Canada released details on a new study they performed on household debt. Between the years of 1999 and 2016 the average non-mortgage debt of homeowner households was $18,100. Interestingly, those families with positive expectations for the future held $6,800 more debt than other homeowner families with neutral or negative expectations for the future. The conclusion was that families with positive expectations had higher debt-to-income ratios and were more apt to increase their spending and carry more debt before an expected pay raise.
What’s that saying? Don’t count your chickens before they’re hatched? It’s only natural to get excited about money you expect to show up in your bank account. The danger is that there’s no guarantee that the money WILL show up when you expect it to, if at all. The best course of action is to wait. However, if you’ve found yourself under a mountain of debt and you want to start taking care of it read on to learn more about credit card debt consolidation.
How it works
Consumer debt can take shape in many forms. The most common, and most dangerous, are credit cards. These can be useful tools, but left unchecked can become a quickly growing burden. The first thing you need to do is tackle the problem head on. Sit down, lay it all out and take it in. It might be painful, but the problem will only get worse if you ignore it. Chances are you’ll realise that you’re spending quite a bit of money on debt payments each month. You could continue trying to grapple with the monthly payments or you could look at consolidating. This means lumping all your consumer debt together, transferring it to one lower interest loan such as a line of credit, a low interest credit card, a balance transfer credit card, or a HELOC (home equity line of credit), and attacking your debt all at once. If you’re serious about getting out of debt as soon as possible, this is choice for you.
Once you’ve consolidated your debt you’ll have just one payment to make each month rather than juggling multiple debts at once and trying to decide which one to prioritize first. Any extra payments you make will help to chip away at your debt faster and you won’t be penalized for it.
Typical credit cards carry a high interest rate of about 19.99% but a balance transfer credit card or line of credit have much lower interest rates. Some providers even offer 0% rates for a short term period of 3-6 months. A low interest rate means more of your payments will go towards chopping down the balance of your debt rather than paying off the interest it has incurred.
Stick to your guns
Debt consolidation can be a hugely effective tool for taking down debt. However, there is the temptation to stick to minimum payments and rack up more high interest debt on your credit cards. In order to avoid this you can lower the limit on your credit card or cancel it altogether. If you really want to keep yourself accountable, print out your payment plan and put it up on the wall somewhere you’ll see it every day. Seeing your goal and being able to watch yourself get closer to it every month will help you to stay on target.
Paying off the debt you’ve accumulated is only one half of the solution. The other half is to find out how and why you got into this kind of debt to begin with. Take a good look at your spending habits, ask yourself what happened and how you can do things differently going forward. If you don’t find the root of the problem you’re likely to find yourself in debt again sooner than you expect.
To find out what kind of debt consolidation products are available now contact us today to get started!