How to Get Out of Credit Card Debt in Canada

How to Get Out of Credit Card Debt

When enough is enough and you’re ready to get rid of your debt

When it comes to your health and wellbeing, too much credit card debt can have a serious impact. Credit card debt can lead to sleepless nights, daily stress, and family arguments at home. In many cases people struggle to make ends meet and believe that working hard enough will allow them to beat credit card debt on their own, but how do you know when it’s time to finally seek help?

No matter how you got into debt, there are options that can help you find relief! Call 1-844-402-3073 to speak with a trained credit counsellor who will assess your situation and provide you with advice. Alternatively, you can take your first step by completing a Free Debt Analysis online and a counsellor will contact you soon.

how to get out of debt canada

How much debt is too much debt?

While there is no set amount to measure if your credit debt is too high. It really depends on your personal situation and income, what’s manageable for one person may be a problem for another. Even though there is no specific dollar amount, a good measure of your debt is your debt-to-income ratio. This compares how much debt you owe versus the total amount of income you take home. If you’re spending the majority of your income each month to pay your debts, you are likely not leaving enough for transportation, food, utilities and other bills you need to pay off to live comfortably. If this is the case, then you need to look at how you’re managing your debt and it may be time to seek help.

There are other ways to determine if you have too much debt. Do you suffer from stress worrying about how you’re going to pay your bills? Do you take out debt on one card, just to pay another one? Are you aware of how much you owe in total? Do you avoid family or friends because of your debt or hide your spending from them? Do you abuse drugs or alcohol to escape from money troubles? Is your debt impacting your personal or professional relationships or your work performance? Have you depleted all of your savings?

If any of these sound familiar, they’re all strong indications that your debt load is unmanageable. Although you may feel overwhelmed and hopeless at the moment, you can take charge of your debt and change the direction of your life.

What are the risks involved in postponing debt relief?

When you’re struggling with your finances, it may feel easier to ignore the problem altogether, and hope that your situation improves. Keep in mind that credit card debt isn’t one of those problems you can push off until later, because waiting often makes the problem worse and more difficult to control.

Credit cards often carry high interest rates, so your debts will increase as interest adds up. If your account balances are high, even if you pay the minimum amount due each month, those payments may only be covering the interest accrued. You actually pay very little towards the original debt – also referred to as the principal — so interest continues to build up, making it even more difficult to get anywhere.

The physical and mental impact of carrying debt

Debt stress is real, and anyone who is shouldering debt can tell you that. It’s not just about worrying and about sleepless nights. Debt stress can transform into anxiety disorders and depression. There are also a number of physical ailments, like dizzy spells, gastrointestinal problems, head and body aches and heart problems that can come as a result of debt stress.

If you knew that taking steps towards debt relief would not only give you the chance to get your finances on track, but that you could take care of your physical and mental health at the same time, wouldn’t you act today?

Can you handle debt on your own or should you seek help?

There are a number of strategies available if you need to reduce your debt to make it more manageable. If setting up a budget and directing all of your extra cash towards debt payments aren’t helping your situation, you may need to take further measures such as debt consolidation. While there are numerous debt consolidation options you can choose, it’s important that you do your research, have all your facts straight, and choose the best debt relief option for you. Choosing the wrong debt relief route can often lead to an even worse financial situation and wasted time.

What are the most common debt solutions?

Depending on your personal situation, the amount and type of debt that you’ve got and what your income is, there are typically a few different debt relief options available in Canada.

If you’re able to consolidate debts on your own, a DIY debt consolidation (i.e. with a balance transfer) can be an effective way to combine payments and attack your debt most quickly. If this isn’t an option, you can always seek a debt consolidation loan from your financial institution, if your income is sufficient and your credit score is good.

If consolidation isn’t an option, entering into a debt management program with a credit counselling agency is a viable way to pay your debt off and preserve or even improve your credit rating over time. Debt management programs can be helpful because your interest rates and finance charges are typically negotiated down or eliminated. This can be a good option for someone who is able to afford payments to pay off their debts, but need a little longer to accomplish this goal.

For those who don’t fulfil these requirements, a consumer proposal may be an option to get you out of credit card debt. Basically, a Licensed Insolvency Trustee (LIT) works on your behalf to negotiate with your creditors to forgive a portion of the debt that you owe, while you pay the rest. With the assistance of your LIT, you then arrange a payment plan, which usually spans 48-60 months. As soon as your consumer proposal is filed, interest stops accruing on your debts, which can help you afford your debt payments more easily. While there will be damage to your credit history, successful completion of a consumer proposal, as well as responsible credit use afterwards gives you an opportunity to restore your credit in a relatively shorter time frame.

As a last resort to get rid of credit card debt, you can always consider declaring bankruptcy. While bankruptcy may on the surface seem appealing, because it is a “blank slate”, there is actually far more at stake, so the consequences must be carefully considered. When you declare bankruptcy, your debts are forgiven, but you will be required to hand over (or sell) many of your assets to offset these costs. There is also long lasting negative impact on your credit, which may impede your ability to qualify for credit in the future for some time, if at all.

When determining what route to take, don’t be afraid to ask questions, ask for references and even check out consumer reviews. Becoming aware of how what your options are and taking steps to becoming financially literate is how you will ultimately regain control over your finances.

Here are three steps to take when you’re ready to get out of debt.

Step 1: Get Organized

No matter which debt relief solution you seek, they all have some common elements. You’ll be required to have your financial information readily available. You will need:

  • Your monthly budget, including income, monthly bill obligations and estimated expenses.
  • All credit card account information, including account numbers, creditor names, current balance and APR.
  • The status of each account – i.e. You need to know if you are current with your payments, how often you make payments, or if you are late with payments, and when you last paid.
  • Your credit rating – If possible, obtain a copy of your credit report, which lists the status of each account on the report. You can get a copy of your credit report through TransUnion or Equifax.
  • Other unsecured debts, such as personal loans, student loans, lines of credit, amounts owed to Canada Revenue Agency, etc. Make sure you know the amounts and when the debts were incurred as you will need to include these in your strategy to get out of debt.

Step 2: Get Informed

Once you have all your documents organized, the next step is to decide how to get out of debt given your unique financial situation. Between debt consolidation, debt settlement, do-it-yourself consolidation loans and more, there are several different options to choose from. It’s essential to know what options are available, understand how each option works and any impact they may have. Otherwise, you run the risk of making your debt problems worse by choosing the wrong solution for your needs.

Here are some questions to ask yourself when considering options to get out of debt:

  • What are my priorities for paying down my debt?
  • Does this option help me reduce my debt and make my finances more manageable?
  • Does this option reduce the interest rate on my debt?
  • How soon will I get out of debt using this option? Is it faster than simply paying my debts down normally?
  • How will this option affect my credit?

In addition to researching your various options to get out of debt, you should also research any companies you are considering using to help you solve your debt problems. Some companies make a business out of scamming people who are in desperate financial situations. The last thing you want when facing financial hardship is to choose an option that can make your situation worse or more stressful. It’s always best to research any financial service provider by reading customer reviews online and checking the Better Business Bureau to make sure the company is reputable. You can be vulnerable if you are overwhelmed with debt, so make sure you do your due diligence to protect yourself.

Step 3: Get Professional Help

This is an important decision for your financial future and you want to make sure it’s the right one for your own situation. If you are considering a do-it-yourself debt relief option or debt settlement option, you want to know you’re making the right decision before you invest your time and money.

The financial professional that you choose to work with, no matter what your debt relief option, should be there to help you attack your debt today and to teach you about the necessary money management skills that will help you achieve financial success going forward. You’ll need to know how to set and live by a budget and the importance of savings.

If you have questions about your debt, or if you are unsure which debt relief solution is right for you, call 1-844-402-3073 to speak with a trained credit counsellor who can assess your financial situation and provide you with valuable advice with a free, no-obligation debt analysis consultation. You can also get started with a Free Debt Analysis.