Credit cards are full: how to get out?
In January, many consumers are left with credit cards to pay off. For sure, a month or two will be enough to pay for everything. But for others, the arrival of the first account statement of the year heralds the start of a long period of financial anxiety.
Here are some signs that you need to turn things around:
- You cannot pay the balance on your credit cards.
- You only refund the minimum payment required.
- You use a card or your line of credit to pay for another card.
- You feel anxious when you think about paying off your debts.
Where to start to correct the situation and regain your financial serenity? Here are some tips on how to do it.
Stop the bleeding!
Stop using your credit cards until they are fully refunded. Each new expense extends the repayment period and increases the interest charges payable.
Pay back more than the minimum required
If you pay the minimum required for a credit card with a balance of $ 5,000, it will take you over 65 to pay it off in full! And this, provided you do not use it! Meanwhile, you will pay huge interest charges: over $ 22,000!
To calculate the time it takes to pay off your credit card, use the Financial Consumer Agency of Canada’s payment calculator. You can compare different options and see the benefit of increasing your payments. You can also consult the Consumer Protection Office’s website “Minimum payment, interest $ maximum $”.
Negotiate a lower interest rate
Contact the card issuer and request a rate reduction. If you have a good credit report, your application could be approved and save you money.
Reduce your savings
Use your monthly savings to pay off your credit cards. The rate of interest you pay on your debts is most likely higher than the return on your investments!
Pay off credit cards with the highest interest rate
If you have multiple credit cards, make all the minimum payments, but apply an additional amount on the one with the highest interest rate. This will save you on credit charges. As soon as this card is fully reimbursed, tackle the second high-rate card.
Use the snowball method
If you are worried about the number of credit cards to be reimbursed, you can use the snowball method. You will pay more interest than with the previous method, but it will reduce your stress. To do this, pay all of your minimum refunds, but apply an additional amount to the card with the lowest balance. It will be paid quickly and you can tackle a second card. Some people find this method more encouraging.
Transfer your balance to a reduced rate card
Several financial institutions offer consumers to transfer their credit card balance to a new reduced rate card or even a 0% card. Warning! Read the conditions carefully. Check:
- If there are transfer fees and their impact on the “reduced” rate;
- What interest rate applies to new purchases;
- What will be the interest rate after the promotion period;
- How will interest on the balance payable at the end of the promotion be calculated? Is it retroactive to the date of the balance transfer?
Apply for a consolidation loan
If you have debts and too many cards to pay off, you can consolidate everything into one loan. For this solution to work, however, you must stop using your credit cards and avoid going into debt again.
If you use a line of credit to repay your debts, be careful that its flexibility of use (and repayment) does not increase your debt. Pay off a fixed amount each month as you would a personal loan. Also, don’t use your margin for new purchases.
Now that you have a plan to pay off your credit cards, make sure you don’t find yourself in the same situation next year. Make a budget, plan your annual expenses and save for future expenses. You will be proud of yourself next January!