Credit Card Debt Canada – The Ultimate Guide

Are you worried about your credit card debt in Canada? You are not alone. According to Simple Rate, on average, Canadians owe $73,532 in credit card debt.

A credit card is one of the most commonly used forms of payment in Canada. The convenience, flexibility and low interest rates make it appealing to make purchases.

Unfortunately, credit card debt can be highly challenging to deal with. It makes life harder and has the potential to ruin your future.

While taking measures to get your debt under control is important, it can become overwhelming if you don’t know where to start.

So what steps can you take to pay off credit card debt in Canada?

You have to consider many things if you are looking to get rid of your credit card debt successfully.

From budgeting to debt consolidation, here you will learn the great strategies to beat your debts and finally be free.

By the end of this post, you will feel confident knowing how to eliminate your credit card debt forever!

Are you ready? Great! Here we go.

What is Credit Card Debt?

Credit card debt is money that you owe a company for purchases you made using your credit.

Debtors can build up credit card debt by opening several credit cards with different terms and loan rates.

Credit bureaus will monitor and document all of a borrower’s credit card accounts.

Credit cards are reliable means of short-term credit since they enable you to make transactions immediately, despite their high interest rates.

Discipline is important for effectively handling credit card debt. To stop accumulating interest, it’s better to pay off the whole balance each month.

Credit card debt is unsecured; this implies that it has a limited repayment period.

If you fail to pay your credit card debt according to the terms and conditions of the debt, you will face certain consequences.

However, if you can meet the terms and conditions of a credit card debt, then your credit card can pay the bills for you.

Of course, you have to be careful about how much credit you use, and you should always pay off this debt monthly, but if used correctly, this can definitely help you in the long run.

Why Credit Card Debt?

WHY CREDIT CARDS

Convenience

Credit card debt is convenient because it can be used to make purchases anytime, anywhere.

Not everyone can afford to pay for their purchases in cash. Some people have many financial obligations that simply can’t wait until they receive their paychecks.

Thus credit card debt is a convenient way to meet short-term financial obligations without worrying about money.

When you have a credit card, you don’t have to plan for your purchases or save up a large amount of money to buy something.

Instead, you can use your credit card whenever you want to make a purchase and pay for it over time.

Credit card debt gives you the convenience of being able to buy whatever you want, whenever you want it, and not having to worry about whether or not you have enough money on hand.

Cover Unexpected Expenses

When you are in a debt crisis, it is tough to deal with that. It can be so overwhelming that it is hard to see a way out of the woods.

One of the biggest benefits of getting into credit card debt is having access to a line of credit that can fund your expenses in case of emergencies.

Credit card debt allows you to pay for unexpected expenses without the burden of saving money up for it.

When an emergency strikes, it pays to have an emergency fund handy to meet the cost of that emergency.

A credit card debt serves as a kind of mini-emergency fund, one that you can rely on at all times.

If you don’t have enough saved up for an emergency expense, you can rely on credit card debt instead of putting yourself in a financial crisis.

In case of emergency, it is better to borrow money for a limited time while you get back on your feet than to have no way of covering the expenses altogether.

Build Your Credit History

Another benefit of credit card debt is that it helps you to build a positive credit history.

Your credit score – the magic number that determines just how much money you can borrow and at what interest rate – is determined based on your past borrowing history.

By using a card responsibly and making payments on time each month, you show potential lenders that you can responsibly handle the responsibility of carrying debt.

This is one of the most important factors they consider when determining the interest rate or terms to offer on future loans.

Your credit card debt needs to be paid promptly, even if you do not have enough funds in your account to cover the entire expense.

Paying the minimum payment will show that you can meet your financial obligations, even on a small scale. Paying your balance in full is even recommended as sometimes this can help boost your score.

Why You Need To Pay Off Your Credit Card Debt?

Why You Need To Pay Off Your Credit Card Debt

1. Pay Less Interest

One of the biggest reasons to pay off your credit card debt is because you will be able to save a lot of money by not paying interest on your credit card balance.

Overdue credit card debt can cause you to pay a large amount of interest on what you owe for many months or years. To avoid this, you need to pay off your credit card debt as soon as possible.

By paying off your credit card debt, you will reduce the impact that your future spending decisions will have on your cash flow.

With an average rate of 19% annual percentage rate, you will save thousands of dollars by paying off your card credit debt as when due.

2. Reduce Stress

Credit card debt causes a lot of stress for many people. You wake up in the morning wondering how you are going to make your minimum payments.

This level of stress can affect all areas of your life, including professional, personal and family. Paying off your credit cards allows you to get rid of the worry.

Being credit card debt-free means that you don’t have to worry about paying interest rates or getting calls at work from collection agencies.

This will reduce much stress from financial challenges and give you more freedom to take profitable actions.

3. Attain Financial Security

Financial security is one of the most important goals you should set. To achieve it, you need to eliminate your credit card debt.

Indebtedness can really hold you back from reaching your goals and living the life you want.

Paying off your credit card debt will have many benefits in your life. It can help you get your finances in order, buy a home, and increase the likelihood that you’ll retire wealthy.

Your current financial situation will determine your financial security in the future. It’s important to understand how paying off your credit card debt contributes to this.

4. Increase Your Future Earnings

When it comes to increasing your future earnings, the single best thing you can do is to pay off your credit card debt.

When you allow debt to pile up on credit cards, you ultimately take money away from yourself in the future.

If you pay off your credit card debt now, you will have more money, later on increasing your future earnings.

The amount of debt you are in is like a chain around your neck, restricting everything you do. Every decision you make is affected by how much you owe, which may determine your future earnings.

5. Contribute to Your Retirement Plan

How do you save for retirement? Do you contribute to 401k, your employer’s retirement plan, or other tax-advantaged savings accounts?

If so, you should consider paying off your credit card debt too. You have plans for your retirement, and you want to enjoy the time when you stop working.

To do that, you have some saving and investment to do — along with some paying off your credit card debt.

If you have outstanding credit card debt, paying it off as soon as possible is one of the top investment moves that can help give your retirement portfolio a boost.

6. Qualify for Mortgage or Car Loans

When you get approved for that mortgage loan or car loan with no money down, it’s a great feeling. But what happens if you can’t make those payments? It’s the worst.

Basically, when you have a significant amount of credit card debt, your credit score is lower. Having a low credit score makes it more difficult to qualify for loans like a mortgage or a car loan.

This is because any money you owe on your credit card will be reflected on your credit report and negatively impact your credit score and ability to borrow.

Paying off your credit card debt can help improve your overall financial health and can also make it easier to qualify for mortgage and car loans in the future.

Unpaid Credit Card Debt Consequences Canada

Unpaid Credit Card Debt Consequences Canada

 

Several factors, including determining the consequences of not paying your credit card debt.

  • The amount of debt
  • The duration of the time you stopped paying
  • The type of assets you own
  • Your location
  • Your income

Damaged Credit Score

If you don’t make payments on your credit cards, it can damage your credit score, making it harder to get a loan.

Your credit score is your reputation. It should be essential for you to know which actions can threaten a good credit history.

If you are obliged to pay off outstanding debt but do not have the ability to make payments on time, you may face negative repercussions.

When you don’t settle the unpaid balance on time, the creditor could report negative information to the credit bureaus, which can impact your credit score.

The credit score is calculated from the information reported by creditors.

Therefore low credit scores can affect your chances of applying for loans or other services/goods with unfavourable conditions attached to them.

Increased Interest Rates

If you cannot pay your credit card bill on time, your rate of interest will become higher. This will increase your payment, and you will end up paying a lot more due to high interest.

If you still cannot pay your debt, or if you are worried about making minimum payments, you may want to think about filing for bankruptcy.

Keep in mind that there are consequences to filing bankruptcy, such as not obtaining credit in the future.

There could also be other adverse effects of filing for bankruptcy, such as losing your non-exempt assets, reduce your credit score.

Constant Disturbance

When your debt is unpaid, collection agencies may begin contacting you to try to work out a payment schedule.

They may delegate unannounced visits to your house and place calls at all times of day and night.

The collection agency may eventually pass your debt to a law firm or a local attorney who will seek out payment through formal court proceedings.

They may have already begun this process even before they give up on contacting you personally.

If they feel that contacting you directly has not been working, this is when they will turn to more extreme measures.

8 Easy Ways Pay Off Credit Card Debt in Canada

How to Get Out of Credit Card Debt

Wondering how to get out of credit card debt? It can be tempting to look for an easy way out – but there are no shortcuts when it comes to becoming debt-free.

Sometimes it gets so hard that you think there is no way out of the vicious cycle of high interest rates, but fear not; there is a way out!

We will go through a step-by-step guide that shows you how to set your financial life right.

1. Calculate Your Credit Card Debt

The first step in getting out of your credit card debt is to calculate how much you owe. When you know how much debt you have, you can start making a plan to get out of credit card debt in Canada.

Examine your credit card’s latest recent billing statement and create a spreadsheet with the balance due. This should include the minimum monthly payment and the interest rate.

If you are not sure of your credit card debt’s interest rate or balance, contact your credit card company as soon as possible.

After you have all your information down, add up the total of your debt. If you have multiple cards with different balances, treat each one separately.

2. Create a Budget

It is hard to get out of credit card debt if you don’t know how much you can afford in payments each month. This will help you see how much money you need per month to pay off your credit card debt.

After determining your total credit card debt, build a budget to show you how much money you have leftover each month to put into debt.

When creating a credit card debt budget, consider all your shopping, transportation, housing, health etc.

Deduct the expenses from your total income in a month (after taxes). You should use the remaining amount to pay off your debt.

3. Pay More than the Monthly Requirement

When you’re in a tight financial situation, it can seem difficult to pay more than the bare minimum on your credit card per month.

On the other hand, paying the bare minimum extends the time it takes to pay off the debt.

Finding costs in your budget that can be cut and adding that money to pay your credit card debt is a safer choice.

Eating out or going to the coffee shop regularly is something that you can do without. Small compromises will go a long way toward reducing your credit card debt.

4. Switch to a Credit Card with a Lower Interest Rate

Since interest will account for a significant portion of what you spend on your credit card per month, make sure the card you’re using has a low interest rate.

This can make it more complicated to pay off your credit card. Consider changing the balance to a card with a lower interest rate if your card’s interest rate is 15% or higher.

You could qualify for a promotional offer for cards with an introductory interest rate of as low as 0%.

Should you qualify for this, move the balance and pay as much as you can per month. Reducing interest costs is a great step when it comes to eliminating your credit card debt.

5. Spread out Your Payments

Installment Plans provide you with lower interest charges than credit cards on your monthly payment.

This will allow you to make an unexpected purchase or save money from what you have budgeted.

You may also make use of your credit card benefits, like travel rewards or insurance coverage. When you move your purchase to an Installment Plan, you can select from various options to pay off your purchase over time.

Upon creating an Installment Plan, your subsequent credit card statement will reflect the installment payment due for that month plus the interest rate.

6. Do a Credit Card Balance Transfer

It’s also a wise decision to do a balance transfer if your credit card interest rate is high (i.e. 19.99% and above). Balancing transfer credit cards gives you promotional periods with as low as 0% interest rates.

Some balancing transfer credit cards could lend you 0% promotional periods for 10 months. You can transfer some or all of your balance to this card and pay it off, thus eliminating the interest charges you had to face.

However, before the promotional period is up, you must pay the entire balance. Failure to pay even a penny of a balance transfer will incur interest charges.

Because balance transfer credit cards typically come with much higher interest, paying off the balance late could be costly.

It is extremely important to prioritize a balance transfer credit card when your debt.

Alternatively, consider making one large cash payment on this card while making the smallest possible amount on the other credit cards.

Continue to increase your repayment of other debts each month once you paid your balance transfer card.

7. Get Help from a Credit Advisor

If your credit card bills have become unmanageable and you’ve been having a difficult time trying to make ends meet, then you might want to consider contacting a credit counselling service.

A credit counsellor will contact your creditors and work out a payment plan – for free. That way, you won’t be worrying about collections or extra interest charges that will only make matters worse.

Maybe you have already tried and failed at paying off your debt on your own, or perhaps you just do not have the money necessary to make a large lump-sum payment to credit card companies.

If you are looking for more effective methods of paying down debt, try speaking with a credit counsellor. Think of it as a “second opinion” about your loans.

In addition to helping you clear your debt, the best credit counsellor can also help you manage your personal finance to avoid debt in the future.

8. Consolidate Your Debt

Are you drowning in credit card debt? The interest rates are killing you, and it seems like it takes forever to pay them off. Consolidating your debt with loans or lines of credit may be your saving grace.

When you have all of your outstanding debts consolidated, you are bundling everything into a single debt.

Not only will it help you better organize your monthly expenses, but by combining debt into one payment, you’ll be able to pay less interest.

To consolidate your outstanding debt, you need to apply for a debt consolidation loan and use the single monthly payment to pay it off.

It will be difficult to get a loan with a bad credit rating, though. However, Canada’s best bad credit loans will provide you with loans with a bad credit rating.

Before deciding on a lender, make sure you’ve read and understood all the terms and conditions.

Determine whether you will save more interest and fees if you borrow the money rather than save it on your credit card balances.

Best Ways to Consolidate Credit Card Debt Canada

Debt Consolidation Loan

Banks, credit unions and other financial firms provide a debt consolidation loan to pay off unpaid loans and combine them into one big loan.

This is one option that would prove very beneficial for you as it will enable you to pay off all your credit card debts in one go, without having to pay the hefty interest on each of them separately.

By consolidating your debts into one manageable payment, however, you will take a significant step towards regaining control over your finances and finally start to move toward becoming debt-free.

There are different banks and financial companies that offer you a consolidation loan if you meet certain requirements.

This includes a decent credit score and collateral. Ensure that you choose the one that suits your situation.

Consolidate Using a Home Equity or Mortgage

Home equity loans and mortgages are two secured loans. When you secure a loan, it means that your home is used as collateral for the loan.

Homeowners with good credit can take out a home equity line of credit (HELOC) or use an existing mortgage to consolidate debt.

You may get as many mortgages and equity lines or bonds as you apply for if you buy many assets and have the necessary equity.

There’s no cap on how many home equity loans or HELOCs you may get as long as you’re not overleveraged or borrow more than the worth of your assets.

The biggest downside to a HELOC or mortgage is that you face losing your house if you default on the loan. So, a HELOC or mortgage is not the best decision if you don’t have a stable income.

Debt Management Program

If none of the above options is suitable for you, a debt management program could be your best choice.

A debt management plan incorporates all of your credit card costs into a single monthly charge.

You then submit a single monthly deposit to a credit counselling service, which distributes the money to all of your creditors.

Your borrowers must consent to let you enroll in a debt management program. However, they usually do if a non-profit credit specialist agrees it is the best fit for your to show them evidence.

Any of your credit card loans can be paid off in 5 years if you participate in a debt management program.

Most people pay off their services as soon as possible, with the typical service running for fewer than three years.

Borrow from Family or Friends

This may be a perfect choice if you have relatives or friends who can give you the funds you need to consolidate your debts.

When you ask a family member or relative for assistance, don’t feel offended if they say no.

A friend or family member may place too much importance on your friendship to risk it by lending you money.

Regardless of what you think, they will not feel comfortable forgiving the loan if things don’t work out.

You can tend to perceive the individual who borrowed the money differently in your head if you find yourself unable to meet the payments.

Although borrowing money from family or friends to consolidate loans might be a good choice for certain individuals.

It may not be the best option for some, even if they have friends or relatives that can borrow money.

Be sure you really need help from a family member or a friend before diving in.

File a Consumer Proposal

When you are not eligible for a debt management program or debt consolidation loan and don’t want to go bankrupt, a Consumer Proposal is another means you take to consolidate your debt.

A Consumer Proposal is where a Bankruptcy Trustee requires your creditors to consider a payment that is smaller than the entire value of your debt.

For the proposal to succeed, creditors who own at least half of the loans must approve it. If any of your creditors oppose the proposal, you’ll need to dig at some debt-reduction solutions.

If you can’t keep up with the program’s fees, the proposal will fall apart, and you won’t be eligible to submit another one.

You may have to apply for bankruptcy. If most of your creditors agree to the Bankruptcy Trustee’s proposal, you can repay less than the entire amount of your loan in five years period.

How to Get Credit Card Debt Relief in Canada?

How to Get Credit Card Relief in Canada

When your credit card balance is so huge that making minimum payments doesn’t seem to make a difference, taking action to stay out of debt will alleviate your financial concerns.

You should put together a roadmap to bring life back on track and get out of debt with the right guidance and advice.

You may obtain a better interest rate for yourself, but you may still require others to negotiate credit card debt reduction for you, depending on your case.

Here’s how to do both.

Negotiate Relief Yourself

Negotiating credit card debt relief yourself entails approaching the credit card providers and requesting that they reduce the interest rates they charge you.

A lower interest rate ensures you’ll pay less interest if you have a balance. This ensures that you pay down a larger portion of the debt for each deposit rather than allowing interest charges to consume it.

The perfect moment to negotiate is when you have low balances and you are consistent with your repayment.

But if you have big loan balances or are late on payments, recruiting a debt relief agency could be the right choice.

Negotiate through a Debt Relief Agency

Negotiating with creditors isn’t a fun process. It can be embarrassing, stressful, and in some cases, even frightening.

If you no longer afford the minimum payment for your credit card debt, it’s time to seek the help of an expert.

You’ll have more opportunities if you get assistance now rather than later. Regardless of your debt situation, it’s critical to request assistance from a reliable debt relief agency.

A reputable debt relief agency knows how to deal with your creditors. The faster you approach one, the most possible it is that they will be able to give you the least expensive option.

Also, the agency should be able to effectively help you get out of debt and negotiate a much better interest rate for you.

Bottom Line

While credit card debt can be helping, especially in terms of unexpected expenses, avoiding and getting rid of it should be the goal of everyone.

If you are working towards becoming debt-free, you need to start investigating your credit card debt today.

The drawback of credit card debt in Canada is not just about an increase in interest rate, but it can negatively affect your credit score and your financial future.

Getting your credit card requires discipline, dedication, plus a willingness to make sacrifices in other areas of your life.

With the different methods discussed above, you have all you need to start eliminating your credit card debt today.

Should you require any help in the process of getting rid of your credit card debt in Canada, you should not relent to seek help from experts, family members or friends when possible.

Be sure you make a move!

Popular FAQ’s

Is it bad to be in credit card debt?

While credit card debt has some benefits, it is not encouraged to have it. Being in credit card debt can hurt your credit score and have serious financial consequences for your future.

However, should you find yourself where being in credit card debt is the last option, ensure that it is something you can repay at the right time to avoid repercussions of late or unpaid debt.

What happens to Credit card debt after death in Canada?

Debt does not simply vanish after you pass on.

Unsecured debt under your name is your sole responsibility; your family is not liable for your outstanding credit card balance.

When you pass on, your unsecured creditors will usually tag your loan as a loss. This, however, varies according to creditors, so it’s important to confirm it with your creditors.

On the other side, your spouse or partner would be liable for the outstanding balance on any joint accounts.

Can you go to jail for credit card debt in Canada?

The simple answer is no. You won’t be jailed for not repaying your debts. In Canada, failing to settle the debts is not a ground for imprisonment.

However, depending on the circumstances, your creditors might be able to hire a collection agent. They might have the legal right to prosecute you in court for the money you owe.

They may proceed to receive a judgment that would result in your salary being garnished, taking over your property, or a judgment compelling you to provide voluntary payments.

Will my credit card debt ever go away?

Debt does vanish from your credit records. However, nothing prohibits a collection agency from tracing disappeared debt and reporting it again to the credit bureaus.

After seven years from the first skipped payment date, the bulk of negative items would automatically vanish from your credit sheet.

If the debt is unpaid, it will not be forgotten after seven years. Even if the debt is old enough to appear on your credit report, you owe it to your creditor.

Vendors, creditors and debt collectors will use the right legal channels to recover the debt from you since the debt still exists.

If the court has approved, this means contacting you, writing emails, and garnishing your income.

When the state’s term of limitations for the debt extends more than seven years, you may even be sued.

How much is too much debt?

Most financial firms in Canada will not lend you money if you are already paying down your existing loan with 40% or more of your monthly salary.

This figure is referred to as the total debt service ratio (TDSR). However, how much debt is too much is a personal judgment.

When it comes to loans, you are in the right position to know when you’ve reached into your comfort zone.

You probably have too much debt if your debt payment leaves you with little or no leftover cash at the end of the month.

Still, have some questions? Drop them in the comment section below.

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