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How to Get Out of Credit Card Debt in Canada

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Credit card debt in Canada is on the rise. Fortunately, you can pay off your credit card debt using eight simple steps and become debt free for good.

The numbers don’t lie: many Canadians are trapped in a debt cycle. According to Statistics Canada, Canadian households currently use 14.9% of their income for debt payments and credit card use is on the rise. Credit card debt is one of the worst to have because of the sky-high interest rates. If you do one thing this year, make a plan to pay off your credit card debt pronto. No credit card debt means you’ll have more money to save, invest, or spend, as well as put aside for emergencies. If you’ve made your goal to pay off credit card debt once and for all, here are eight simple steps to get out of credit card debt in Canada.

8 Steps to Get Out of Credit Card Debt

You don’t have to tackle every single step immediately – the important thing is to get moving toward credit card debt freedom.

1. Calculate Your Credit Card Debt

You can’t tackle your debt without knowing how much you owe in total. Review the most recent billing statement for each credit card and make a spreadsheet of the balance owed, the minimum monthly payment, and the interest rate. If you don’t know the interest rate or balance, call your credit card provider ASAP.

2. Create a Budget

Once you know your total debt load, create a budget to show you how much money you have left over each month to put toward debt. List all expenses including housing, transportation, groceries, entertainment, and personal care. Subtract the total from your monthly income (after taxes). The remaining amount can pay down your debt.

You can create a budget using a good old-fashioned pen and paper, an Excel spreadsheet, or by using one of the best budgeting apps in Canada. Our top choice is You Need A Budget – a handy budgeting app that can be easily downloaded to your iPhone, Android, iPad, and Apple Watch. You can try YNAB free for 34 days, and it’s estimated that new budgeters save on average $600 by month two and more than $6,000 in their first year. That’s a lot of money you can put toward debt repayment!

3. Move Your Outstanding Debt to a Credit Card with a Promotional Balance Transfer Offer

One savvy strategy for paying off debt faster is getting a balance transfer credit card. How it works: move your outstanding debt from a high-interest credit card onto the new credit card offering a special introductory interest rate on balance transfers. The best balance transfer credit cards in Canada offer promotional interest rates between 0% to 13.99% on balance transfers. This smooth move could significantly reduce your interest payments – so long as you aggressively attack the balance during the introductory period.

4. Get a Lower Interest Rate

Lowering your interest rate is one way to ensure more of your dollars are used to pay down your balance owing, not interest payments.

One way to get a lower interest rate on your credit card: call your lender and ask for one. If you’re having trouble paying down your credit card debt, sometimes being upfront with your lender has the best results. Call your lender and explain your situation, and they may give you a temporary reduction in your interest rate.

However, if you’re seeking a rock bottom rate, check out our low-interest credit cards in Canada. It’s the next best option to a balance transfer credit card, with regular interest rates on new purchases ranging between 8.49% to 13.99%. While it’s higher than what you would pay with a 0% promotional balance transfer credit card, this rate is the regular rate and it beats the 18% or higher interest charged by other credit cards. There are even low-interest credit cards with no annual fees or modest ones, ranging from $29 to $39.

5. Target One Credit Card Debt at a Time

If you have more than one credit card with a balance, you’ll need to choose one to tackle first. There are two primary methods to aggressively pay down multiple debts at the same time, and each has merit.

The first method is the “debt snowball” method. This strategy calls for you to tackle the debt with the lowest balance first, regardless of the interest rate. This gives you a quick win.

Alternatively, you can use the “debt avalanche” method to tackle the credit card with the highest interest rate. This will get you out of debt the fastest but is mentally more challenging.

Either approach is effective, but for the purpose of planning a targeted debt attack, pick one that suits you most.

6. Make Extra Payments

Any windfall funds you receive, including raises, income tax refunds, and cash gifts, should go toward reducing your debt load. This will speed up your debt repayment and dramatically reduce the overall interest you’ll pay on your debt. If putting all your windfall money toward your credit card debts seems unreasonable, compromise by using 80% for debt repayment. Keep the other 20% to spend or save.

7. When Should You Consolidate Credit Card Debt

Perhaps you can’t lower your interest rate on your credit card debt by transferring it to a balance transfer credit card. Or maybe you have multiple credit cards with balances and can’t prioritize one over the other. In that case, consider a personal loan to consolidate your credit card debt. You can easily apply for a loan online and may be able to get funds the same day. Shop around so that you can find the best interest rate and read the terms and conditions carefully.

8. Load Up a KOHO Card

Koho logo

Sign up and get a $20 instant cash bonus (once you load your account and make your no minimum first purchase within 30 days) right to your KOHO account with our link or YOUNGANDTHRIFTY referral code.

    If you continually find yourself overspending, consider removing temptation altogether by switching to a KOHO – a free pre-paid, reloadable card and integrated app that gives real-time insights into your daily spending. Since you’re only tapping into pre-loaded cash on the card, spending with KOHO means you’ll never go into debt. Additionally, you’ll also earn cash back! With their free, KOHO Easy version: Earn 1% cash back on groceries, bills & services. Earn up to 5% extra cash back when shop with partnered merchants. Switching to a KOHO card is a great way to stop accumulating new debt, so you can focus on paying off the debt you already have.

    Credit Card Debt FAQs

    What is the Average Credit Card Debt in Canada?

    While many Canadians have no debt, those that do have more than ever. According to a report released by Equifax, the average credit card debt in Canada is on the rise, with non-mortgage debt up 3.2% in the past year. The number of Canadians struggling to handle their debt loads has also gone up. About 1.12% of Canadians are past due, or delinquent, with their debt – an increase of 3.5% over the past year.

    Equifax data shows the average Canadian has $23,496 in non-mortgage debt. Debt loads peak between ages 46 and 55, topping out at an average of $35,527. Here’s a breakdown of the average non-mortgage debt by age in Canada:

    AgeAverage Non-Mortgage Debt 2019
    All Ages$23,496

    Source: Equifax

    What Are the Unpaid Credit Card Debt Consequences?

    An estimated 1.12% of Canadians are delinquent on their debt. Delinquent means they aren’t making even the minimum monthly payments on their credit cards. Missing your minimum monthly payments can have serious consequences, including:

    • Damaged credit score: Missing a payment will damage your credit score. Other factors are considered, so you need to be aware of them and how they can impact your ability to use credit and get loans. One missed payment isn’t serious, but multiple missed payments can negatively impact your score.

    • Increased interest rates: When you miss a monthly credit card payment, your credit card provider may increase your monthly interest rate, making it more difficult to pay off debt.

    • Collection agencies may begin contacting you: If you’ve missed several credit card payments, your debt may be sold to a collection agency that could use aggressive tactics, like calling you or your relatives at odd hours.

    Is Credit Card Debt Bad?

    Holding credit card debt can have negative consequences, even if you make minimum monthly payments on time. Some of the consequences of carrying a balance on your credit card include:

    • Decreased credit score: If you carry a balance on your credit card over 35% of the available limit, it is a red flag to creditors and your credit score will decrease.

    • High-interest payments: The higher your credit card debt, the more your payments go toward servicing the interest charges, and less toward paying down the principal.

    • Financial vulnerability: You may be able to manage your credit card debt now, but could you cope with a financial emergency? If you lose your job, would you still be able to make your monthly payments? Carrying credit card debt leaves you vulnerable to hardships.

    Should You Consolidate Credit Card Debt by Taking a Loan?

    Sometimes transferring your credit card debt to a balance transfer credit card isn’t an option, or you have multiple debts that are difficult to juggle. In such cases, applying for a loan to pay off your credit card debt makes sense. For instance, Loans Canada offers loans ranging from $500 to $50,000 and interest rates range between 1.99%–46.96%. Its loan search platform allows you to compare lenders and find the type of loan you need.

    If you have a bad credit rating, it will be harder to get a loan, but not impossible, if you apply with one of the best bad credit loans in Canada. Regardless, a personal loan can be a smart strategy for debt repayment. Just carefully read the terms and conditions of your loan, including the repayment terms, before committing to a lender. Calculate whether the interest rate and fees will lower the overall cost compared to the interest you currently pay on credit card balances.

    Last Word

    Many Canadians choose to carry a credit card balance, but really, who wants to be stuck in debt for life? If you want to reduce the amount of money you spend on interest, improve your credit score, and decrease your financial vulnerability use the steps outlined above to achieve credit card debt freedom.

    Once you’ve implemented these steps and become one of the rare Canadians who can call themselves credit card debt-free, you can use the spending and budgeting habits you’ve perfected during debt repayment to establish new, healthy savings habits. By sticking with the momentum you’ve built up during your debt repayment, you can start an emergency fund, put money away for retirement, or even save for a down payment on a home.

    Jordann Brown

    Jordann Brown

    Jordann Brown is a millennial money expert and personal finance blogger based in Nova Scotia, Canada. Jordann is the founder of the popular personal finance blog, My Alternate Life, and she frequently appears as an expert in Canada media.

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