Credit Card Debt

How to use credit and maintain a healthy financial outlook

In some ways, credit cards have become a rite of passage into adulthood. Teens ask for credit cards as a way to gain more financial independence. We’re constantly inundated with commercials about the latest and credit card greatest offers promoting the convenience of credit.

credit card debt

While credit offers a convenient option for spending at the moment, there are long-term, potentially damaging consequences if credit isn’t handled responsibly. Credit cards can be easy to get as well.

The combination of these has unfortunately this has led to significant accumulation of credit card debt. A large number of families now have credit card debt equivalent to a loan you would take out to buy a luxury vehicle or more. As a result, a substantial portion of every paycheque goes towards debt payments, as interest continues to accumulate and debt continues to grow. It’s no surprise that people end up in financial distress.

That’s not to say that credit cards are bad. Using credit cards doesn’t mean you have to accumulate debt and face credit problems. In fact, when used in the right way, credit cards can be an effective tool that can be part of your financial strategy.

The key is to have a financial strategy and to understand how credit can help rather than hurt you.

This section of our website is designed to give you easy access to information you will need to get out of credit card debt. If you are already struggling with credit card debt, and are looking for a way out, give us a call at 1-844-402-3073 or request help now with a Free Budget Analysis.

credit card debt

Credit cards and your credit score

Are you aware of how credit cards use can help or hurt your credit score?

One of the benefits of having a credit card is that you can establish a solid credit history, which can help you achieve other financial goals, like buying a home or a car. However, you need establish a plan for how to use them.  You can assign credit card purchases within your monthly budget, with a plan to pay the balance off every month. That way you can avoid interest charges and can keep your credit healthy too.

Did you know that the bulk of your credit score is attached to whether or not you pay your debt payments on time, along with how high your balances are? It’s in your best interest to make a point of keeping your balances low and paying on time every month.

Pros and cons of credit cards

In addition to establishing a good credit score, credit cards offer a number of other benefits. They are convenient and offer you the ability to make purchases when and where it suits you (online or even in other countries while traveling). Having a credit card makes it easier to do things like rent a car or a hotel room.

Another benefit of credit cards are the rewards programs. If you leverage rewards programs properly, you can save money when you cash in rewards for a variety of things. One word of warning- don’t ever make a purchase simply to get rewards. If you end up carrying a balance as a result and accumulating interest, that reward isn’t very “rewarding”.

Credit cards offer better fraud protection typically than cash in your bank or your debit card. Purchases are more trackable, so you have a better chance of disputing any questionable charges on your card.

Some of the downfalls of credit cards, of course is the interest that they charge. Some cards are lower, but other cards can have hefty interest rates, which mean that you are paying a substantial amount of money if you let that interest accumulate. What’s more is that if you carry a balance with high interest rates, it can be a challenge to pay that debt off, which means you get trapped.

Some cards charge late fees too, which means that if you let your credit card spending get out of control, it can be very, very costly.

Credit cards are open credit, which means that your balance fluctuates month to month and so will your payment. This is a little different than an installment loan, where your payment is set every month. Open credit can be harder to budget for, so you need to anticipate that to manage your credit well.

We’ve talked about how credit cards can help you build up credit. By the same token, misusing your credit cards (i.e. missing payments) can destroy your credit. It can take years to recover from abusing credit cards, if at all.

Tips for healthy credit use

Don’t use credit as a means to extend your spending power. As a rule of thumb, if you don’t have cash in your budget for a purchase, don’t turn to your credit card. Don’t use credit to fund impulse shopping or to make big ticket purchases. You are better off to save up the money and pay in cash. If you feel like you may not be able to resist the urge to spend, leave your credit cards in another wallet and only take them out when it is part of your plan.

Don’t store credit card numbers online. While this is more convenient, it can make it far too easy to shop online without really thinking it through. When you do shop online, ensure that the site you are shopping on is secure. Look for websites with a padlock icon or who have “https” in the URL.

Be proactive with your payments. Don’t wait until the statement arrives in the mail. Take responsibility to make a payment each and every month on time.

It’s when you use credit to spend beyond your means that you start the debt cycle in motion and move closer to financial distress.

How Does Credit Card Debt Compare to Other Debts?

To manage your credit cards responsibly, it is important that you become knowledgeable. Making educated decisions around your credit use is your best bet to staying out of financial trouble through misuse of your cards.

The first essential step to understanding credit card debt is to learn how it works in comparison to other types of debt, like your mortgage or auto loan. This helps you prioritize debts and organize debt payments into your budget.

Understanding credit card debt

Comparing Unsecured Debt vs. Secured Debt

Canada Credit Card Debt Statistics

How do Credit Cards Really Work?

If you want to use credit wisely, you need to know how credit cards work. This helps you avoid common mistakes that can leave you with out-of-control debt payments. Debt problems don’t just happen when people spend beyond their means; they can also occur when people don’t fully understand how credit cards work and what their responsibilities are in using them.

These resources will help you use your credit cards effectively:

What You Need to Know About Credit Cards

Decoding your credit card statement

How Credit cards can impact credit scores

Get Rid of Credit Card Debt

If you’ve accumulated credit card debt, it isn’t too late to adopt good credit habits and work towards the future. The first step is to stop accumulating your debt and to work at paying it off. Eliminating credit card debt means creating a timely and cost-efficient plan to take control of the debt. You should never be satisfied with only making minimum monthly payments if you can do more. Minimum payments are usually made up mostly of interest, so it’s hard to actually pay your debt down if you take that approach.

The following section helps you eliminate credit card debt effectively:

The Danger Signals of Credit Card Debt

Reduce Credit Card Debt on a Budget

Credit Card Repayment Calculator – make a plan

Getting out of Debt – where do I start

Helpful Resources

Left with questions? There is always something more you can learn when it comes to your credit cards.

These resources can help you understand your debt:

Credit card debt FAQ

Online debt quiz: Is it time for help?

Deciding when to give a credit card to your teen