Credit cards are scary because they are easy to run up and then difficult to pay down. Did you know that last year it was reported that the average Canadian is carrying over $40,000 in unsecured debt? If you are one of these Canadians then you probably had credit card debt before you even started holiday shopping! Now the holiday shopping credit card bills are rolling in and you are likely thinking that you could really use some debt relief.
Credit card debt presents the following challenges:
1. Damage to your credit. Even if you are making your minimum payments credit cards can still damage your credit. Did you know that if you let your credit card balance get close to the limit, or if you go over the limit, it reduces your credit score? Yes, it is true, and not only does it reduce your credit score it also causes a message to appear on the credit report that indicates that the proportion of the credit card balances are too close to the credit limits.
2. Minimum monthly payments are too small. Credit card companies set your minimum monthly payment at 1-3% of your balance. This is simply too small. If you make only minimum monthly payments on credit cards it can take many years to pay down the balance.
3. Monthly compound interest. Unlike loans, credit card interest compounds monthly (12 times per year). This means that interest is added to your balance each month. When you combine the fact that your interest compounds monthly with the fact that your minimum monthly payment on your credit card is likely set at 1-3% of your balance, the effective cost to borrow using your credit card is significantly higher than the interest rate on your credit card.
Credit card debt can quickly become overwhelming because once it accumulates it can become really difficult to pay off. Most people do not have the kind of cash flow needed to really get those credit card bills paid off.
Getting debt relief from your holiday credit card bills can be achieved three ways:
1. By paying off the debt by liquidating your savings, getting help from family or winning the lottery. Unfortunately this is an option that most folks don’t enjoy.
2. By consolidating debt through:
a. A loan with the bank – you will need good credit for this option.
b. A mortgage refinance – you will need a home with equity for this option.
3. By taking advantage of an alternate financial program.
If you don’t have good credit or assets then an alternate financial program may be the best choice for you. An alternate financial program will enable you to make a single monthly payment, as in a debt consolidation, and will stop the interest from accruing on your credit cards. Sounds like a great solution right? Well, really the right solution will depend on your personal financial circumstances. Before making any of the above choices your best bet is to speak with a financial consultant who is hired by you, one who can offer you unbiased financial advice so that you can get debt relief from your holiday credit card bills and start off the year on fresh financial footing.
For more information about finding debt relief contact DebtCare at 416-907-2582 or visit www.debtcare.ca.