Tuesday, September 27, 2022

How Do I Pay Off Credit Card Debt

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Bottom Line: How To Pay Down Credit Card Debt

How do I Pay Off my Credit Card Debt Faster? l Snowball Debt

With the labor market improving, wages rising and bigger emergency funds in many peoples bank accounts, the present moment could be a great opportunity for you to pay off all your lingering debts or at least to start paying down your balances.

It might not be quick or easy, but many people who succeed at sticking to a debt management plan say the feeling of relief once they become debt-free is worth the effort.

If you have a lot of credit card debt, theres no time like the present to work on getting rid of it.

Consider A Loan From Your Retirement Account

Raiding your retirement savings to pay off debt is generally not recommended. Retirement accounts are often protected from creditors, so lenders typically cant force you to withdraw those funds to pay off debt. Plus, time is an important factor when saving for retirement. Taking retirement plan loans and withdrawals can slow your progress toward retirement or require you to start from scratch.

But if you have no other options, using a loan from your retirement plan to pay off credit card debt could make senseas long as both of the following statements are true:

  • Youre paying extremely high rates on your debt.
  • Youre confident that you will repay the loan.
  • Unfortunately, its hard to predict whether or not youll be able to repay the loan. Life brings surprises, and if you leave your job before paying off your 401 loan, you may need to pay taxes and penalties. You may also need to repay the loan in full.

    Not all retirement accounts offer loans. An employer-sponsored plan like a 401, 403, or 457 may have a loan feature, but your employer decides whether or not to include that option. Individual retirement accounts like traditional or Roth IRAs do not offer loans. You might be able to take back contributions from a Roth IRA, but youll pay a 10% penalty if youre under 59 ½.

    What If I Cant Make My Credit Card Payments

    Did you know that only 25% of Canadians pay off their credit card debt in full each month?

    That means 75% of us carry a balance on our credit cards each month. In fact, its quite common for Canadians to carry outstanding balances each month on several credit cards, which can result in paying several thousand dollars each year in interest. Many Canadians eventually need credit card debt help.

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    Use Your Old Cards Carefully

    Finally, once you’ve freed up your credit on the old cards by transferring the balance, try to avoid creating new debt with them. You ideally shouldn’t charge more than you can pay off at the end of the month.

    Follow these eight steps, and hopefully your balance transfer can go a long way toward helping you become debt-free soon.

    Closing An Old Credit Card Can Have This Damaging Effect

    How To Pay Off Credit Card Debt Fast

    Although closing an old card down may feel good, it could hurt your in several key ways.

    First and foremost, when you close the account down, it will no longer show as an active account on your credit report. The average age of your account history will be shorter because this older card is no longer active. The average age of your credit record is one of the factors that is used to determine your credit score. And it’s considered better to have a longer track record of borrowing behavior rather than a shorter one.

    And, while the account won’t disappear from your credit history right away, eventually it will drop off your credit report entirely. If you have a positive payment history with the account, there’s little reason to lose that by closing the account — especially if you can just keep it open and continue to get a record of on-time payments since you aren’t charging anything on it. Payment history is actually the most important factor that determines your credit score.

    Closing the account will also reduce the amount of credit available to you. Since credit used versus credit available is another key component of your credit score, called your , this can do serious damage to your credit.

    Since there’s a few different ways closing an old card could hurt your credit, doing so is rarely worth it.

    Ultimately, your credit score is really important and closing old accounts can hurt it — so try to avoid doing it unless you have no other options.

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    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.

    First Pay Off The Smallest Amount

    The snowball method of debt repayment is an alternative to the avalanche. First, paying the lowest balance can help boost your confidence and get you on the road to debt repayment. Lets suppose you have a $5,000 card balance and a $1,000 card balance. It may appear that you are barely paying down $6,000 if you first pay off the $5,000 balance.

    If you pay the $1,000 balance first, it will be easier to track your progress and feel more confident in your ability to repay credit card debt.

    Financial advisors do not recommend the snowball method because it can lead to higher interest rates than if you pay off high-interest debt first. However, it is important to have a debt repayment program that you can stick with.

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    The Importance Of Debt Reduction

    Even with little or no extra money to spare, paying off credit card debt is a worthy goal. With less debt, you’ll have a better shot at achieving other milestones that matter to you, like buying a house.

    Eliminating debt takes hard work, patience and careful strategizing, especially when money is tight. Choose the method that best fits your circumstances and stay positive, knowing that with time and effort debt freedom will come.

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    How Do I Pay Off Debt With The Avalanche Method

    With this debt elimination strategy, also known as debt stacking, youll pay off your accounts in order from the highest interest rate to the lowest. Heres how it works:

    • Step 1: Make the minimum payment on all of your accounts.
    • Step 2: Put as much extra money as possible toward the account with the highest interest rate.
    • Step 3: Once the debt with the highest interest is paid off, start paying as much as you can on the account with the next highest interest rate. Continue the process until all your debts are paid.

    Every time you pay off an account, youll free up more money each month to put towards the next debt. And since youre tackling your debts in order of interest rate, youll pay less overall and get out of debt faster.

    Like an avalanche, it might take a while before you see anything happen. But after you gain some momentum, your debts will fall away like a rushing wall of snow.

    Example of the Debt Avalanche in Action

    Lets say you have four different debts:

    Type of Debt

    To use the debt avalanche method:

  • Order the debts, from highest interest rate to lowest.
  • Always pay the monthly minimum required payment for each account.
  • Put any extra money toward the account with the highest interest rate in this case, the credit card.
  • Once the credit card debt is paid off, use the money you were putting towards it to chip away at the next highest interest rate the personal loan.
  • So, youll end up paying off your accounts in this order:

  • Auto Loan
  • S To A Successful Balance Transfer

    by Christy Bieber | Published on Nov. 15, 2021

    Many or all of the products here are from our partners. We may earn a commission from offers on this page. Its how we make money. But our editorial integrity ensures our experts opinions arent influenced by compensation. Terms may apply to offers listed on this page.

    They can ensure your balance transfer helps you retire your debt.

    If you have high-interest , paying off what you owe can be a huge challenge. The higher the interest rate is, the less each payment reduces your balance — not much money goes to principal when you have to cover hefty finance charges.

    The good news is that there’s a simple option that could make repaying credit cards easier and cheaper: a balance transfer. Follow these eight steps to do it right.

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    Save A $1000 Emergency Fund

    If getting rid of those credit cards freaks you out because you use them as an emergency fund, then get yourself an actual emergency fund as fast as possible.

    Save $1,000 quickly. Leave it in savings as a buffer between you and those life happens moments. And trust us, its way better than a credit card. If you have an emergency and pay cash, you wont be charged interest. Boom.

    Pay Off Credit Cards Or Other High Interest Debt

    How To Quickly Pay Off Credit Card Debt When You Have No ...

    No investment strategy pays off as well as, or with less risk than, eliminating high interest debt. Most credit cards charge high interest rates — as much as 18% or more – if you dont pay off your balance in full each month. If you owe money on your credit cards, the wisest thing you can do is pay off the balance in full as quickly as possible. Virtually no investment will give you returns to match an 18% interest rate on your credit card. Thats why youre better off eliminating all credit card debt before investing. Once youve paid off your credit cards, you can budget your money and begin to save and invest.Here are some tips for avoiding credit card debt:

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    Use A Direct Debit To Pay Off Your Credit Card Debt

    Direct Debit is a system that allows you to pay off your credit card balance without going to the bank or having an outstanding transaction on your account. This method of payment enables you to avoid fees and interest charges. Direct Debit is a beneficial way to pay your credit card bills. It saves you the hassle of writing out checks and remembering due dates, which can be stressful for some people.

    How Personal Loans Impact Credit Scores

  • The application might hurt your scores. When you apply for credit, an inquiry is added to your credit reports. Some credit inquiries may damage your scores for 12 months .
  • Your scores might increase as your personal loan ages. At first, a new account might reduce your average age of credit and negatively affect your scores. As your personal loan grows older, it could help those numbers.
  • A personal loan could lower your credit utilization. Personal loans are installment loans, which dont impact your revolving utilization ratio at all. You can have a high balance on a personal loan, and it will have little to no impact on your scores. If you pay off credit cards with a personal loan, your revolving utilization ratio should decrease, and your scores may improve.
  • Your credit mixture might improve with a personal loan. Scoring models reward you for having a diverse mixture of accounts on your credit reports. If you dont have any installment loans on your reports, adding a personal loan might help your scores.
  • Often, a personal loan has the potential to help you from a credit score perspective. Just be sure you make every payment on time. If you open a personal loan and pay it late, it could damage your scores significantly.

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    Break Out The Calculator

    To start tackling debt, you need to know how much debt you have and what your interest rates are. You can find all of that information on your latest statement. Once you have all of your debt information, use our to figure out how much youll need to pay each month to pay it off in a set amount of time.

    For example, if you have $10,000 on a card with an interest rate of 18%, your monthly payment should be $362 if you want to pay it off in 36 months. We can also help with alternate pay off scenarios that show possible monthly payments broken down by 24-, 36-, 48-, 60-, and 72-month options. Knowing your ideal monthly payment can help you save money in interest and pay off your debt sooner.

    Tips To Pay Off Credit Card Debt In Canada

    How To Pay Off Your Credit Card Debt

    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.

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    Create A Budget And Stick To It

    The more money you can pay toward your credit card debt each month, the faster you’ll eliminate what you owe.

    If you don’t already have a budget in place, start by writing out your average income and expenses over the past few months. Categorize each of your expenses to get an idea of exactly where your money is going. Then you can pinpoint areas where you can cut back and repurpose those dollars for debt reduction.

    If you’re living paycheck to paycheck, this step can be tough. Even if it’s just a few dollars extra a month, though, it can make a difference in the long run. Do what you can to create a budget and continue looking for opportunities to earn or save more in the future.

    Other Ways To Get Out Of Credit Card Debt

    Balance transfers is not the only way to pay off your credit card debt. A debt consolidation approach could reduce and simplify your monthly payments, helping you get rid of debt quickly and efficiently. Depending on your age, current financial situation, income sources, ability to pay, credit scores, size of accumulated debt, and expected timeline to get out of credit card debt, here are some options to consider:

    • Approach a non-profit counselling organization: Get an expert review your entire financial situation, along with sound budgeting advice and an effective debt management plan. Credit counselling agencies work with your creditors to try and negotiate lower interest rates or get certain fee waivers, while also setting up a repayment plan on your behalf. Essentially, you make a single monthly payment to the agency, which they use to pay your creditors. Some of the downsides of this arrangement are:
    • You may have to pay a service fee to the credit counsellor.
    • You may have to sign an agreement that you will not apply for new credit, or use existing credit, during the tenure of the debt payment plan.

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    Call Your Credit Card Company First

    Consider this your first step toward paying off credit card debt.

    Before diving into a plan for paying off your debt, a good first step is to contact your credit card company . You should make sure youre up to date on all of your balances and also ask what your options are as far as any help they can offer.

    In some cases, you might be able to secure a lower interest rate, temporary payment reduction, or change in payment due date. Youre more likely to get a good result if you indicate youre looking for low-interest credit cards from other companies.

    Carrying A Credit Card Balance Could Make Sense In This 1 Situation

    5 tips to get rid of your credit card debt

    by Christy Bieber | Published on Nov. 14, 2021

    Many or all of the products here are from our partners. We may earn a commission from offers on this page. Its how we make money. But our editorial integrity ensures our experts opinions arent influenced by compensation. Terms may apply to offers listed on this page.

    Carrying a credit card balance isn’t a good idea in most cases, but there’s a time when it does make sense. Here’s when that is.

    The interest rate on is generally very high. It’s not uncommon for rates to be 17% or higher. That’s why the general rule of thumb is that you shouldn’t ever carry a credit card balance. Instead, you should use your card to earn rewards and then pay off the bill in full when it comes due. This way, you’ll get the benefit of the card but won’t waste money on interest.

    Of course, there are often exceptions to rules. And there’s one particular situation when carrying a credit card balance can make a lot of sense. Here’s what it is.

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