Credit cards; those little plastic cards that might promise year end rebates, bonus points, cash coupons and other perks are a great tool and should be used whenever possible. The caveat to using the card in order to gain those incentives is to use them wisely and only as long as you know you’ll be able to pay the bill (in its entirety) when it arrives. Making minimum payments, missing even one payment, or not paying the entire balance each month can offset an entire year of perks due to credit card interest charges, penalties and fees. But why don’t the banks warn us of those things?
It would seem that some people have been accumulating credit card debt during the pandemic, and if left unchecked, Canadians can quickly find this debt to be getting completely out of control. When this happens, it can be difficult to pinpoint exactly where the problem started, and even harder to get it back under control.
Here’s a walkthrough of identifying a debt problem and dealing with credit card debt.
Increasing Reasons for Spending
The pandemic put many people in a position where they needed cash as the world came to a virtual standstill. While some businesses (and individuals) flourished during the pandemic, many businesses and employees lost their entire source of income. But regardless of whether someone has income or not, payment obligations and living expenses don’t go away. Bills such as utilities, rent, vehicle payments and even things like subscription services and other non-essential costs do not stop. It should not come as a surprise that when bills keep coming in, but money or income isn’t, people start using credit and accumulating debt.
Naturally when this occurs, many people navigate to credit cards to pay for daily necessities, monthly utilities and other essential costs. While using your credit card offers an immediate solution and a band aid, in only thirty short days, you will be receiving your monthly statement to remind you of your financial responsibility and that the bank wants their money back.
Sometimes we also use credit cards to buy things that we want immediately and we don’t wait to save for them to make sure we have the cash. Unfortunately, the credit card companies expect to be paid back in full, or at least paid a minimum payment every month until the debt is paid in full. If you make your minimum payments and carry a balance on your credit cards, you will continue to accumulate fees and interest on top of the debt you already owe. Remember that credit cards have some of the highest interest rates for credit as compared to other loans. Usually they range in between 20-30% and you can quickly find yourself rapidly spiraling into financial problems if you continue to accumulate debt on those cards.
Apparent Effects of Credit Card Debt
Accumulating credit card debt can be demoralizing as it locks you into a riskier financial position if you aren’t able to pay it back in full. The increased minimum required payments and resulting lack of cash flow not only limits your ability to spend money as you’d like, it also constricts the possibilities of solving your ever increasing debt load. The main reason for using credit cards is because there isn’t enough cash on left over every month, so what can you use to pay back the credit card bills when they finally start coming in?
Sadly, debt doesn’t just impact your finances, it has an insidious way of creeping into all areas of an individual’s life, including your mental health. People will spend hours each day stressing over financial problems and how to turn things around, and that’s before the debt collectors start calling. People living in a situation like this often feel like it’s not only out of your control, but also getting worse.
Potential Ways to Ease Credit Card Debt
Fortunately, there are multiple ways to deal with credit card debt. One of the most popular options when you’re struggling is to file a consumer proposal. Consumer proposals not only stop the accumulating interest and fees and the creditor phone calls & mail as the proposal allows you a set period of time to pay off your debt. As good as that is, even better is that most consumer proposals allows you to compromise the total debt with your creditors and only pay off a portion of your debt. There are also other alternatives available in Ontario that are worthy of consideration. These include:
- Transferring your current debt from a high interest credit card to a credit card with more favourable (lower) interest rates.
- Applying for a consolidation loan, which allows you to group your debts in one place, making it easier to manage.
- Filing for bankruptcy, which eliminates most if not all of your debt.
Conclusion
If you are one of the people who are facing growing credit card debt, don’t feel bad as there is no shortage of people who through circumstance or misfortune have found themselves in a difficult place. Fortunately you don’t have to shoulder these burdens alone and fixing the problem starts with seeking financial advice from trusted licensed professional and specialists who will understand your situation and will get you through this difficult time. Paul J. Pickering and Associates Limited specializes in financial counselling, consumer proposals, proposals and bankruptcies in London and surrounding areas. We provide relief from credit card and other types of debt with a variety of options that can help meet your current financial challenges.
Contact us at 519 -672-2494 today! www.paulpickering.com.