Work With Your Creditors
Reach out to your creditors to explain your situation. A credit card issuer may be willing to negotiate payment terms or offer a hardship program, especially if youre a longtime customer with a good track record of payments.
If your issuer offers a hardship program, it may provide relief when circumstances beyond your control like unemployment or illness impact your ability to manage payments. Whether you negotiate with your issuer or accept the terms of a hardship program, either option could lead to more affordable interest rates or waived fees, depending on the issuer.
These small changes might be just enough to help you get a handle on your debt, and the worst that can happen is they say no.
Pay Off The Highest Interest Loan First
To get out of debt the absolute fastest, youre going to want to pay off the loan with the highest interest rate first.
For example, lets say Credit Card A has a balance of $1,000 and a 12% interest rate, and Credit Card B has $1,500 at 6% interest. You put down $150 total every month, paying the minimum payment on one and whatevers left on the other.
Youre going to save more money by eliminating Credit Card A first vs Card B . Once youve decided what you should prioritize, its time to come up with a plan of attack.
When it comes to your student loans, you can actually save thousands of dollars each year by paying down your debt more each month.
Yes, you read that right. You can save money by spending MORE.
Lets say you have a $10,000 student loan, at a 6.8% interest rate, and a 10-year repayment period.
If you go with the standard monthly payment, youll pay around $115/month. Like I said before, paying the minimum digs you into a bigger hole. Even $20 more per month can save you huge amounts of money.
Pay Off Your Smallest Balances First To Create Momentum
Commonly called the Snowball strategy, it relies on human psychology – we feel we are making progress if we can get the “quick wins”. Pay off the smallest debt first and the sense of achievement encourages us to keep going and tackle the next smallest debt.
This positive feedback cycle builds momentum until all debts are cleared. Like the avalanche strategy, you maintain the minimum repayments on other debts while you work to clear the first one. Similarly, the amount you can dedicate to the repayments on the next debt increases as you clear each smaller debt.
Note however that this strategy will almost certainly be more expensive in the long-term if you have larger, higher interest debts compounding while you pay down smaller ones.
Be very honest with yourself about which credit card debt strategy will work for you. If you have the discipline and determination, the avalanche strategy will always be better from a strictly financial standpoint. But if you think you need the encouragement that comes with clearing many smaller debts, the snowball strategy may be a better fit for you.
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Understand How To Use Credit Responsibly
Once your debt is gone, it’s just as important to maintain strong habits to avoid accumulating debt again. You don’t need to swear off credit cards entirely, as long as you’re committed to using credit responsibly in fact, regularly making purchases using a credit card and paying them off right away is one of the tried-and-true methods for building a good credit score.
Once you’re free of credit card debt, make sure to stick to the budget you created. Once you’re ready, and you’re confident you can keep your debt under control, you can start using credit cards again. If you do use a card to finance something, make a plan to pay it off within a reasonable amount of time. Credit cards should be a tool that you use intentionally and wisely.
It’s also crucial to monitor your and your , which includes the information that contributes to your score. Regularly checking your credit lets you notice any dips to your score, which could potentially be a result of a missed or late bill payment or an increase in your account balance. Understanding the elements that contribute to good credit will reinforce the importance of sticking to those habits.
Paying Off Your Credit Card Balance
If you have debt and are only making the minimum monthly repayment, it can feel never ending. This is because the minimum repayment you make might be only a little higher than the interest each month so the amount you owe will reduce very slowly.
Example: if your credit card balance is 1,000 and you pay off 50 each month at an interest rate of 17%, our clearing your credit card calculator shows you that it will take two years to repay the balance, provided you stop using the card. If you increase your repayments to 100 per month, you could clear your balance in 11 months . Our also works out how long it would take to clear your credit card debt if you switch to a credit card with a lower introductory or interest rate. That could mean clearing your debt even quicker and it could also cost you less in interest.
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Consider A Balance Transfer Credit Card
If you have good to excellent credit despite your debt which is possible if youve been making your minimum monthly payments on time and kept your low you may qualify for a 0 percent APR balance transfer offer with a balance transfer credit card. This zero-interest introductory offer could last anywhere from 12 to 21 months and will let you transfer your higher-interest balances to the new card. Youll save on interest for the duration of the 0 percent period, making it easier and faster to get out of high-interest debt.
You should always pay attention to the interest rate after the promotional period is over, says Justin Zeidman, manager of credit card products at Navy Federal Credit Union. Consider how long it will take to pay off your credit card debt in comparison to the promotional period so you dont get stuck with a higher interest rate after the 0 percent interest period is over.
Who this strategy is good for: Those good at keeping track of credit card payments.
Find Ways To Make Extra Cash On The Side
- Take on more hours at your current job.
- Ask for a raise.
- Look for temporary or odd jobs on job boards.
- Turn something you’re good at into a side business.
- Sell some of your personal belongings that you no longer need.
In addition to these, there are several other ways you can earn a little extra money each month to help pay down your debt. Take time to consider which approach works best for you based on your situation.
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Trim Your Expensesfree Up Some Cash To Pay Debt Faster
Speed up your debt repayment and get out of debt fast by reviewing your monthly expenses and looking for ways to cut your costs.
Start by tracking your spending for the next two weeks to find out where exactly your money is going . You might be surprised to learn that making your morning coffee instead of buying a $3 specialty drink will save you over $1,000 a year!
Check your spending to see if you can find more ways to save some money. Every little bit will help you get closer to a life free from credit card debt.
If youd like more ways to save on expenses, we have tons of ideas on our educational website, MyMoneyCoach.ca. Here are some great resources:
Struggling with credit card debt?
Get help from an expert.
Trying to pay off your credit card debt can feel overwhelming, but you dont have to do it alone. One of our professional credit counsellors would be happy to review your finances with you, work with you on making a solid budget for successfully repaying your debt, or work you on special debt repayment solutions if they fit your situation. Speaking with our certified counsellors is always free and confidential.
Could You Be Eligible For A Free Grant
If your household income is low there are a whole host of grants available from charities and the government that could help support you. These may include help with paying utilities, keeping your home warm, or even grants for education.
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How Personal Loans Impact Credit 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.
Consider Nonprofit Credit Counseling Or Financial Assistance
Credit counseling agencies do a lot more than just create debt management plans. If you’re having a hard time making heads or tails of your debt situation, a .
For example, they can review your debt situation, help you create a budget, explain your options, review your credit report with you and also provide some educational courses. Many agencies do all of this for free.
If your financial situation is dire, you may also consider seeking financial assistance. This may come in the form of rent relief, food stamps, legal aid and other assistance programs from federal and state agencies, as well as nonprofit organizations. You can use the 211 network to find programs in your area.
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Consider The Snowball Method Of Paying Off Debt
This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off. Understand the pros and cons of this debt pay down strategy by reviewing the Snowball versus Avalanche methods of paying down debt.
Tips On Tackling Your Credit Card Debt
- Stop using your card. If you want to clear your debt, you need to stop adding to it. Resist temptation by leaving your card at home.
- Pay off as much as you can each month so that you reduce your debt as quickly as possible. If you are only making the minimum repayment each month, it will take you a long time to pay off your balance. Paying more than the minimum payment could help you reduce the time it takes to become debt free. Use our clearing your credit card calculator to see how increasing your monthly repayments will help you pay off your debt faster.
- Ask your credit card provider if they will consider reducing the interest rate on your card. This will reduce the amount of interest added to your credit card debt each month.
- Think about whether you could switch to a credit card that has a lower rate of interest, or 0% interest on balance transfers. Check out our to see what rates are currently on offer. If you are able to move your balance to a credit card with 0% interest for a period of time, then every cent you pay will reduce your debt. Use our clearing your credit card calculator to see if you can pay off your credit card debt faster by switching. Remember, this only works if you repay the balance during the interest free period and you dont use the card! And if you do want to switch, your new card issuer will look at your credit history, employment status, income and the level of debt you have, including any credit card balances that you want to transfer.
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Consider Nonprofit Credit Counseling And Financial Assistance
There are many ways to get help developing a credit card payoff strategy. With assistance from reputable financial experts, you might be able to identify your best budgeting method, learn about how to negotiate with creditors or apply for economic hardship programs to lower some of your bills.
A good place to start is a nonprofit agency. These organizations offer free initial consultations to anyone who needs basic help budgeting or exploring debt reduction options. They can help you view your situation holistically alongside other debt you may have, such as student loans or a mortgage. The counseling agency could also get you on a debt management plan, which is a paid service that aims to reduce your credit card debt. Debt management plans aren’t right for everyone, thoughâmore on that later. Find a local credit counselor through a national network like the National Foundation for Credit Counseling.
Reduce Your Credit Limit
To avoid the temptation to overspend on your card, ask your credit provider to reduce your credit limit. You can do this online, by phone or by visiting a branch. In most cases, it takes between one and two business days.
If you need to increase your limit to buy something special, aim to pay it off quickly. Then reduce your limit again to a manageable amount.
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Create A Monthly Spending Planit Will Help You Avoid More Debt
To learn how to get out of debt and to stop borrowing from your credit cards again and again, create a monthly spending plan for your money. This will let you live within your means rather than above your income, which is where credit card debt comes from. It will also make it clear when you can expect to be debt-free so long as you stick to the plan.
Want help making a plan? Weve got an interactive budget calculator spreadsheet that will guide you through the process and make the idea of budgeting way less painful. This will help you stay within your budget and maximize your ability to pay down your debts. We also have lots of other budgeting resources if you prefer different ways of budgeting.
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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Do A Budget And Reduce Your Outgoings
A household budget is a plan that summarises your earnings and spending habits, so you have a clear idea of where your cash is going and where you can make changes to reduce outgoings and boost the money you have to pay down your debt.
If you stick to it, a budget plan will help you make sure you dont fritter away more than you earn and potentially help you work your way out of debt.
Find out more: follow our step-by-step plan to working out an effective household budget.
Ways To Get Something Removed From Your Credit Report
Before you get started, note that if your negative information wasnt the result of an inaccuracy or crime, neither Equifax or TransUnion will remove it from your credit report prior to the designated date. Otherwise, there are 6 different ways to get an error or other negative incident removed from your credit report:
Wait For It To Go Away Naturally
Normally, timely payments and other positive incidents will stay on your credit report indefinitely and will improve your credit score over time. On the other hand, negative information will remain in your credit history for several years, the length of which depends on the incident. Common examples of negative information include:
- Late/missed payments = 6 years
- Consumer proposals = 3 years
- Bankruptcies = 6 7 years
In these cases, the simplest way to deal with the negative information is to wait until Equifax and/or TransUnion clears it from your report. As mentioned, whether the incident was intentional or accidental, neither bureau will remove it immediately, because it was technically your responsibility to pay your debts on time.
File a Dispute
Although waiting for the negative information to be removed is the most convenient option, remember that it can damage your credit score while its on your credit report. You may not want to wait for years, during which you could get denied for new credit.
- For the dispute to have grounding, be sure to provide any proof you have that shows that the incident was not your fault
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