4 Ways To Reduce Credit Card Debt

Navigating the Credit Maze: 4 Effective Strategies to Minimize Credit Card Debt

In line with the digital revolution, plastic money, particularly credit cards, have become a standard component of the modern wallet. As of September 2022, the average Canadian possesses 1.4 credit cards, with the typical credit limit being a whopping $5,800 as per TransUnion.

Despite their convenience, credit cards pose a financial risk due to high-interest rates that hover around 19%. Failing to fully pay your balance monthly could lead to a snowballing debt. If you find yourself within the grasp of credit card debt, you’re not alone. Here are 4 Ways To Reduce Credit Card Debt.

1. Prioritize Your Debt

The first step in your journey to a debt-free life is prioritizing your credit card debts. Depending on your short-term objectives, you may choose to first clear the card with the smallest balance while maintaining minimum payments on other cards.

If enhancing your credit score is your target, focus on the card with the highest utilization rate. This can be calculated by dividing the card’s balance by its credit limit. Remember, using over 20% of your available balance negatively impacts your credit score. Therefore, even a 20% reduction in the utilization rate could significantly boost your credit standing.

Finally, if your goal is to cut down on credit card interest, prioritize paying off the card that charges the highest interest.

2. Negotiate Lower Interest Rates

You might be surprised to learn that a simple phone call could help lower your credit card interest rate. If you have a credit score of 730 or above, or if you’re a long-time customer who consistently pays on time, your credit card company might consider reducing your interest rate.

Even a small decrease of one or two percentage points could lead to considerable savings over the course of a year.

3. Consider Balance Transfers

Several credit card companies offer new customers a 0% interest rate for a period of six months or more if you transfer your balance to them. While this can lead to significant savings, it’s crucial to understand the terms and conditions to avoid pitfalls.

Commit to paying off your debt within the low-interest window, and resist the temptation to use the new card. The low-interest rate may not apply to new purchases, and you might be charged a balance transfer fee of 3 to 4% of the total transfer amount.

4. Double-Up on Minimum Payments

Credit card companies calculate interest on a daily basis. Hence, the sooner you make a payment, the lower your average daily balance and the accumulated interest. So, make at least two minimum payments every month, even if you’re on a tight budget.

Looking for Support?

If your financial situation is spiraling out of control, don’t despair. Our accredited credit counsellors offer proactive budget mentoring services to help you regain financial stability. Reach out today for a free consultation.

Remember, taking the first step is often the hardest. But with careful planning and discipline, you can successfully navigate the credit maze and reduce your credit card debt.

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