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.
Use The Avalanche Methodthe Most Popular Way To Get Out Of Credit Card Debt Some Claim Its The Best
Many people have found that the Avalanche Method was the best way for them to get out of credit card debt.
Heres how it works. After paying debts that are on fixed monthly payments , make the minimum payments on your credit cards with the lowest interest rates and maximize your payments on the credit cards with the highest interest rates. Once a debt is paid, use this extra money to pay down the credit card with next highest interest rate.
The Avalanche Method will save you money and help you pay down all of your debts faster.
Can A Collection Agency Sue Me On Behalf Of A Creditor
Suing debtors is not a common activity for collection agencies. Researchers have estimated that collection agencies across Canada sue only about one in 10,000 accounts assigned to them for collection.
The fact that collection agencies do not often sue people does not prevent them from threatening to sue debtors. It is very common for collection agencies, collectors employed by collection agencies, and lawyers working on behalf of collection agencies, to threaten legal action when in fact they have no intention of proceeding.
What About My Credit Score
Some individuals worry that they will never be able to own a house if they have been bankrupt or filed a consumer proposal, but this is far from the truth. However, rebuilding your credit rating after bankruptcy or consumer proposal is an essential step before you will be granted credit again at a favourable rate.After you are discharged from bankruptcy, or have received your Certificate of Completion for your consumer proposal, it is a good idea to let the credit bureaus know. Both credit bureaus will allow you to send them a copy of your documentation. However, even if you do not contact them, they will soon learn of your completion and will update their files.
Your credit score right after consumer proposal or bankruptcy is likely to be quite low often in the high 400s.
Apply as soon as you can for a small amount of credit to start you on your way to a better credit rating. This may take the form of a secured credit card, a loan from your bank, or even a car loan. Make sure to maintain a perfect payment record on this new credit, and dont use more of it than you can easily handle. Soon, your credit score will begin to rise!The record of your bankruptcy or consumer proposal will eventually be erased from your credit report. See our page, When Does A Bankruptcy Clear from My Credit Report for more information.
Reclaim Money In A Forgotten Bank Account
There are billions of pounds lying unclaimed in dormant bank and building society accounts, investments, pensions and life insurance policies.
If you think you may have lost a bank or savings account then there are free tracing schemes to help you recover lost money. For investments, pensions and insurance policies you may have to pay a fee to search.
Find out more: finding lost accounts the simple steps you can take to re-trace your lost money online.
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Use 0% Intro Apr Cards To Save Money On Interest Charges
Many people use zero-interest promotional offers to save money on credit card interest chargesbut even the best 0 percent intro APR cards only work if you pay off your balance in full before the promotional interest rate ends.
We made sure that any debt at 0 percent for a set amount of time was paid off the month before that final payment was due, Williams explained. If we owed $2,000 on a 0 percent credit card, and we had seven months before the interest hit, wed aim to pay it off in six months and pay $333.33 a month.
Once Williams and her husband had paid off all of their 0 percent intro APR cards, they avoided opening any new zero-interest promotional accounts, including balance transfer credit cards. We knew our weak points, and getting new cards at 0 percent interest seemed too easy to backslide. While Williams might have been able to save money on interest charges by taking out new credit cards with 0 percent intro APR offers, she and her husband decided to focus on paying off their existing credit accounts first.
Borrow From Home Equity
If you own your home, and if there is substantial equity in it, and if you could refinance and take out some cash to liquidate your high-interest credit card debt, and if that would free up extra money in your budget, and if you were absolutely certain you wouldnt start charging beyond your means again, maybe a visit with your friendly mortgage lender, or a competitor, would make sense.
But thats a whole bunch of ifs. The point here: Youre putting your home at risk.
Before you embark on such a radical move, consider scheduling an assessment with a nonprofit credit counseling agency. Their experts are likely to have ways out of your credit card debt hole you never imagined.
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Refinance Your Mortgageconsolidate Your Debt With Home Equity
If you own your home, you may have enough equity to consolidate all your debts into your mortgage. If you dont have much equity in your home, additional mortgage insurance costs could be expensive. Consider your options and seek advice from someone other than your lender .
Just like with a debt consolidation loan, when you consolidate debts into your mortgage, you also need to create a budget. If you dont, youll always be tempted to borrow more when emergencies happen.
Repeatedly using your home as an ATM can set you up to face retirement with a lot of debt, no assets, and no savings.
If normal banks and credit unions arent able to help you with refinancing your mortgage, dont immediately turn to a home equity lender. Instead, speak with one of our credit counsellors.
Find out how to get back on track.
Get the help you need. Find the right option that will work for your specific set of circumstances. Instead of endlessly looking through debt consolidation company reviews, let one of our experienced counsellors help you. If we can’t fully help you, we’ll refer you to an organization we trust that can or help you put together an action plan so you can get started on your next steps. Feel free to give us a call or chat with us online. We’re here to help.
Get the clarity you need
Put Your Credit Cards On Iceyes We Mean That Literally
This might be hard to hear, but getting out of debt means taking your credit cards out of your wallet so youre not tempted to use them.
Freeze all of your credit cards in a bucket of ice until youve completely paid off your outstanding balances . Paying for your purchases with cash instead of credit will help you separate your needs from wants, remain conscious about your spending, and make you think twice before spending money.
Once your debt is gone, trying thawing out just one or two of your cards. You may find that one or two is more than enough for all of your needs.
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Heres What Happens If You Stop Paying:
- One payment missed: If you have a good borrowing history, your creditors may simply send you a polite reminder letter.
- Two payments missed: You will get a strongly worded letter, and possibly also a phone call, demanding payment.
- Three payments missed: Creditors may begin enlisting collection agencies to press you for payment. Collection agencies will make your life unpleasant, using a variety of pressure tactics to get the money.
If you still dont pay, stronger methods can be used, and the creditor or collection agency may take legal action against you. This can lead to wage garnishments or liens against property.
If your creditor is the Canada Revenue Agency , note that the CRA can proceed with liens or garnishments without having to take you to court first.
Your best bet to make things better is to act immediately. You may have more options than you think!
How To Request Help From Your Credit Card Companies If Youve Been Impacted By The Coronavirus Pandemic
Missing a payment on your credit card or paying it late can result in fees or added interest, but it can also have a negative impact on your credit score. This is why its important to contact your credit card companies immediately if you know you cant pay your bill.
Here are important steps to requesting relief.
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Make An Extra Monthly Payment
Youre probably in the habit of monthly billing cycles, but you dont have to wait until your payment due date to pay down some of your balance, and you arent limited to making just one payment each month.
If you get paid every two weeks or bimonthly, making two payments a month might be feasible if youre paid more often say, you get a weekly paycheck or youre a tipped worker you might want to consider jump-starting your debt-management plan by paying weekly.
Another advantage to making more than one monthly payment is if you use that money to pay down your credit card balance as soon as you earn it, you wont have the chance to change your mind later and splurge on something else with those funds.
Just make sure that the total amount of money you pay by the due date on your credit card statement is at least as much as your minimum payment, because late charges and penalty rates still apply if you fail to do so.
Heres another hot tip: Lowering your debt quickly can also improve your credit score by lowering your credit utilization, which can make it easier to qualify for a balance transfer credit card .
It Takes Time And Determination To Conquer A Mountain Of Debt
But if youre equipped with the right knowledge and tools, the journey to conquering that mountain can be relatively smooth. Plus, you dont have to tackle that mountain of debt alone credit counselors are available to help.
Of course, no two attempts to conquer debt are the same a debt reduction plan that works for one person may not work for another. And unless you stick to your plan, youll likely have a tough time chipping away at your debt.
If youre not sure how to tackle your credit card debt, weve got some advice on steps you can take. While this advice wont guarantee success, it can help point you in the right direction.
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Hide Your Credit Cards And Pay Cash
Put your credit cards away and start using your debit or pay cash. It is a well-known fact that it is easier to overspend when using your card than it is with spending cash.
Cash impacts your chequing account immediately while credit creates an illusion that you have more money than you really do.
It is not advisable to close your credit card accounts, as this can tank your credit score. Instead, cut them up , or hide them where you cant access them easily.
Use the old school cash envelope system where you budget for different expenses and then put the cash into envelopes to prevent over-spending. You need to start accounting for every dollar you spend, and using cash makes that easier.
Wondering what your credit score is? Check for FREE using Borrowell or .
How To Get Out Of Debt: Bankruptcy And Alternatives To Bankruptcy
Cant pay your bills? Youre not alone. Many Canadians reach this point at one time or another in their lives. In 2018 alone, 125,266 Canadian consumers filed insolvency claims .
Thousands of consumers before you have experienced the following scenario: the bills get ahead of you and before long you are using lower interest credit cards to pay off your higher interest , and borrowing from one account to pay off another. Then one day you realize: Im in trouble and I need help figuring out how to get out of debt!
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Avoid Creating New Debt By Making It Hard To Spend On Credit
One way Williams avoided taking on new debt as she paid off her credit cards was by making it more difficult to make purchases on credit.
We did things like locking our credit cards away, Williams explained. We also removed our credit card information from Amazon and other websites we frequented to make it harder to accrue more debt mindlessly.
Now that Williams and her husband are free of credit card debt, theyve gone back to using credit on a regular basisbut they only make purchases they can afford to pay off in full. Williams also times her credit card payments to keep her credit utilization low and take advantage of her credit cards interest-saving grace period.
We do have a couple of credit cards, and we charge things on them monthly, Williams said. However, we pay them off every two weeks to avoid any interest or fees. Its easier to keep an eye on them and make sure that theyre not creeping up and getting out of control again because youre reviewing them more regularly.
Create Additional Streams Of Income
Pick up a side hustle or find another job so you can increase your income and put more money towards paying down your debt.
Side gig options for raising extra cash include:
» Blogging: There is really no limit to how much you can earn with blogging it is up to you! Want to earn $2,000 in passive income every month? Check out this 6-step guide on how to start a profitable blog.
» Become a Proofreader: Make a 5-figure income proofreading from the comfort of your home.
»Teach English online: Sign up with VIPKid.
For other work-from-home jobs that pay well, check out this article.
You can also generate an additional $50 to $200 per month taking online surveys. A few examples of legitimate online paid surveys I have used to raise extra cash include:
- Swagbucks: They have paid their members over $500 million to date. to receive a $5 welcome bonus.
- Pinecone Research: Earn $3 to $5 per survey completed. Join Pinecone.
- Daily Rewards: It also offers a $5 sign-up bonus.
- LifePoints: Get paid to take surveys and start with 10 free points. .
When you get a salary raise or bonus, cash gift, or tax refund, consider using this windfall to pay off debt.
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Are You Eligible For Tax Credits
Tax credits are state benefits that provide extra money to people responsible for children, disabled workers and other workers on lower incomes.
There are two types of tax credits child tax credits and working tax credits.
Tax credits are tax-free and you don’t have to be paying National Insurance or tax to qualify, but they are means-tested. So, whether you qualify and how much you get depends on your household’s income and circumstances.
Find out more: read our full guide to tax credits to find out if you qualify and how much you could get.
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.
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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
- Scotia Value Visa Credit Card