Debt is the last resort that people take up for emergencies in case they burn all their savings. Though this option seems convenient at the time for borrowing money such as using credit cards. Paying back all kinds of debts is a headache, but credit card debt has a distinctive pain point associated with it. Thus, to help you out, I have listed the top 10 methods using which you can pay off credit card debt in Canada faster. So, let’s dive into it.
The Headache of Credit Card Debt
If you have no savings, income that barely fulfills your monthly needs, and several kinds of debts laden upon you, an additional credit card debt can make it impossible to manage the finances soundly, thus coercing you further into a debt trap.
Securing a credit card in Canada with a high limit may seem like a necessity as it lets you spend money without any worry. However, reality hits you when you have to pay a large sum with high interest which is almost unrealistic for any standard. Since the interest on credit cards is compounded every day, it is evident that you will face snags while paying back that money to the credit card company.
You will be astounded to know that in Canada, the credit card and non-mortgage debt stand at $599 billion, and the average credit card balance is $4,154. While all this may seem daunting, you don’t have to worry because we have created a comprehensive guide with 10 effective ways to pay off credit card debt in Canada easily.
Tips to Pay Off Credit Card Debt in Canada
The first and foremost step to pay off your credit card debt in Canada is to find the reason behind your debt. You also need to comprehend the APR or Annual Percentage Rate, credit scores, principal, minimum payments, and compound interest. The requisite in this process is to not delay payments and make more deposits than usual.
1. Find the Root of the Debt
This is where you start the process of being debt-free. You need to assess the problems in your finances and understand what forced you into debt. Hence the question, “Why are you in debt?”
Is the root problem seated in you making extravagant purchases, or an imbalance between your savings and expenses? Once you find this problem, you can create a roadmap to get out of the same.
If you are a spendthrift, then you should limit your expenses and think more about depositing that miscellaneous money towards debt payment.
What is your current debt status?
To pay off your credit card debt in Canada, you should know how much money you need to pay for your credit card debt including the interest, mortgages, etc. Sum up these numbers to find out how much money crunch you have to do to get rid of it.
2. Develop a Sound Payment Roadmap
You are aware of your credit card debt amount, so what is the next step along the road? I will simplify your answer by explaining the strategies advocated by Dave Ramsey: “Debt snowball” and “Debt avalanche”. These are widely practiced debt reduction strategies.
The debt reduction plan recommends you get done with small balances first and accumulate minimum deposits for all the other debts. Hence, if you go back to the list of debts in the first step, find the smallest balance and repeat the process until all your debts have vanished.
Let’s understand this with an example of a hypothetical debt list, where you are only in the condition to commit $600 towards debt payment monthly:
|Debt Type||Credit Balance Due||Interest Rate||Minimum Payment Requirement|
|Credit Card 1||$1,000||5%||$50|
|Credit Card 2||$5,000||11%||$150|
According to the snowball strategy, here your focus will be on paying off Card 1 as you owe the smallest amount on it.
For instance, you will deposit $400 as a minimum for Card 1 and Car loan and then the left out to be put towards the balance of $1,000 on Card 2.
This strategy is the opposite of a debt snowball. Here you pay the highest interest debts first and then move on to other smaller balances.
Let’s take the above-mentioned example for reference, if you are only capable of putting $600 towards payment of credit card debt monthly, the debt avalanche strategy will direct you to make the minimum $150 payment towards Card 2 and Car Loan and then move on to pay the $50 towards the balance of Card 1.
Debt snowball versus Debt avalanche
Debt snowball motivates you to keep paying your debt, even if it is in small steps. Hence, eliminating your credit card debt swiftly.
Debt avalanche focuses on eradicating the balance with the highest interest first. For example, in the above-mentioned list, an avalanche strategy will have the goal to pay off Card 2 because it has the highest interest rate. This is a money-saving approach because the higher the interest, the more amount you will need to pay in the long run.
In essence, any debt that is stuck to you for a long time will implore you to pay high interest. If all your debt comes with varied APRs, it is self-explanatory that you will pay the highest amount for the highest interest for every passing day.
Hence, in a financial context, a debt avalanche is more preferable to a snowball. However, if you often sway away from the goal, you can resort to a snowball strategy to boost your morale for paying back your credit card debts.
3. Budgeting is Key for Re-payment
You now have a plan to pay off your debt in a suitable manner. Now is the time to ensure that you have the funds to support your strategies and pay off credit card debt in Canada efficiently. Your budget should be very succinct with the amount allotted to each necessity. Some applications that you can use for the same include Mint, YNAB, and KOHO.
Credit card companies in Canada are happy with you making minimum deposits. However, this is their scheme to siphon off more money from your account because the larger sum that stays in the due balance, the more they can charge interest for every month. So, it is better for your pockets if you make full payments each month and get rid of the debt.
4. Stay Away from Cards and Rely on Cash
If you are already drowning in debt, you should avoid the idea of adding more to it by using credit cards. Instead, the best course of action is to secure your credit cards far away from your eyes and rely more on debit cards and cash. Psychology will also come into play, as it is known that overspending via cash is more difficult than splurging money with a card.
Cash will bring down your checking account balance, credit cards create a fake belief that you are having more money than you think. However, I am not recommending you to close your credit card, it will have a negative impact on the credit score which can be a hurdle in the future. All you have to do is obscure them far away from your reach.
You can use the old-school trick where you keep separate envelopes for each expense and regulate your spending habit. Hence, you will be accountable for every dollar in your bank, which will promote savings.
5. Limit the Expenses
Budgeting is incomplete without the expenses column, as you need to be aware of where your money is being used. Hence, monitoring expenses can transform you into a savings-driven person.
Try implementing some of these savings methods in your daily life.
- Cook your food at home. You can also take up the $5 meal plan to step up your savings game.
- Do your car maintenance.
- Save energy and water, which leads to money savings.
- Limit excessive grocery shopping.
- Cancel subscriptions that do not benefit you.
- Buy gas at a lower price.
- Go to work via carpool or walk the distance.
- Quit smoking and drinking a lot.
- Use Tangerine banking applications in Canada to cut down on bank fees.
Make Negotiation Your Power
You will not know the power of a bargain until you do it yourself. Hence, demand a better offer on cable, internet, or phone bill by contacting your service provider.
Use cashback websites
Cashback comes in handy when you need to make purchases repeatedly on mostly all general expenses. You can use the plethora of free cashback applications that include:
- Rakuten: If you do online shopping on Rakuten, you can get up to 30% cashback and a $5-$30 signing bonus.
- Drop: You can get a $5 sign-up bonus and a cashback on all 5 of your most liked retailers.
You can pay your debt via the excess cashback of $20 to $100.
6. Create More than One Income Sources
You can use your talent to create more income or you can even do a side hustle to make it easier to pay off your credit card debt in Canada. Let’s take a look at some of these options.
Proofreader: You can make a good income by correcting grammar and making write-ups better.
Blogging: There is no cap on blogging income. If you have a unique blog with a target audience that you can leverage, creating a 5-6 figure business is easy.
Be an online teacher: If you have some extra time, this is also a good option to make money.
Additionally, you can create up to $100 by doing simple online surveys on the following applications:
- Pinecone Research: They will pay you $3 to $5 for every survey that you take.
- Swagbucks: When you sign-up you get $5 as a bonus.
- Daily rewards: Get a $5 sign-up bonus.
- LifePoints: You get 10 free points and collect more as you take surveys.
You can leverage this windfall of promotion, raises, bonuses, or cash gifts to pay your debts.
7. Do Balance Transfers at Lower Rates
You can get a balance transfer cash with a minute rate at selected banks and further save on payments.
If you have a balance transfer card that levies a 0% promotion rate on the credit card for 1 year, you will have $1000+ in interest savings. You can use this time to quickly pay back the principal amount, further lowering your interest and debt payment.
Here is a list of balance transfer cards in Canada:
- MBNA True Line Mastercard
- Tangerine Money-Back Credit Card
- Scotia Value Visa Credit Card
8. Leverage Personal Loan for Credit Card Debts
If your credit card balance is too high, a personal loan might save you by providing money to pay off the credit card debt. If your credit score is good, even when the credit card interest rate stands at 28%-29%, you can get a personal loan at considerably lower rates.
This strategy helps because you get to save yourself from multiple credit card debts and put all your focus on the personal loan payment that is fixed, monthly, and single. Your interest rate is also lower, translating to low installments and a boosted credit score.
In case your credit score is not in good shape, you can acquire a debt consolidation loan that might have somewhat high-interest rates.
To pay off your credit card debt in Canada, you choose from the following options.
You are allowed to take up to $30,000 in personal loan with interest based on your credit score.
HELOC or Home Equity Line Of Credit
If your home comprises equity, you are eligible for a HELOC where you get low rates because your loan has your home as collateral.
You should keep the following points in mind if you are going for HELOC for your credit card debt:
If you stray from your goal of paying off the credit card debt and spend your money on non-essential things, you will end up in more debt than before. Hence, don’t forget to make regular payments.
Some loan providers will charge higher origination fees. Hence, read the T&C to ensure you do not pay a hefty sum on your loans. Furthermore, you can lose your home if you fail to pay back the money on a HELOC.
9. Strike a Deal for Low Interest
You should reach out to your credit card company and ask for a lower rate on your debt. This might not always work, however, if it does you will stand to save hundreds of dollars because you decided to give it a try.
Negotiation will need some persuasion. Hence, you need to contain your composure, call, and follow up and work something mutual between the company and yourself.
10. Make Payments Every 2 Weeks
If you make more than one credit card debt payment in Canada monthly, your interest savings will increase and your debt will be gone before you know it. The principle behind this suggestion is not very complex.
If you pay 2 payments every month, instead of 12, you are paying 26 half-payments, annually. This is equal to 13 monthly payments in a year.
For instance, if you have $600 for debts every month, you can pay $300 every 2 weeks. You can also save on overdraft fees by matching your payments and bi-weekly paychecks. Frequent payments equal a higher credit score which in turn builds your rapport and lowers your credit utilization ratio.
The Bottom Line
If you have a high credit card debt in Canada, putting a high savings amount in your bank is not very lucrative. 3% is currently the best savings rate that you can acquire from any bank. But if you compare and contrast this to the 20% rate that you will be paying, you will observe that it is better to use your savings to pay off credit card debt first. Now you can save as much as you want without any pressure.
If you are also tired of paying debts and looking for a quick way out of them, following the aforementioned strategies will help you pay off your credit card debts in Canada.