Top Tips on How to Handle Credit Card Debt and Debt Repayment

How to Handle Card Debt Repayments

No one wants to struggle with credit card debt or other types of debts.

But unfortunately, it’s a reality faced by millions of Canadians every year.

If you’re in this situation, it’s vital that you know the best steps to take to handle your debts.

Debt repayment is essential in getting your finances back on track – so although it may seem like a huge hurdle to tackle, it’s something that you must investigate as soon as it happens.

However, many routes that are suggested simply aren’t attainable.

So to point you in the right direction, we’ve created a comprehensive guide that could prove to be invaluable in the long run:

Obtain a Credit Report 

Before you start to look into the various techniques that you can use to handle your debts, you need to identify exactly how much you owe.

You can do this by obtaining a credit report which will list your complete payment history, any late fees that you’ve accrued, outstanding debt, etc.

Luckily you can obtain a free copy of your report from Canada’s two biggest credit bureaus – Equifax and TransUnion.

Meet with a Credit Counsellor 

When navigating through your credit card debt and debt repayment, it’s advisable to get in contact with a credit counsellor.

Guiding you through the process, they will suggest different methods to use to help get your finances back on track.

Assessing your unique situation, they never offer a one-size-fits-all solution – meaning that you’ll be able to repay your debts in a way that suits you.

Debt management plan 

One of the ways that you can repay your debts that a credit counsellor may suggest is a debt management plan.

This plan lays out exactly how much you’re able to repay each month to your creditors so that your budget isn’t stretched.

Taking into account your monthly expenses, along with a fixed amount that you can repay, it can be an efficient step in the right direction.

A type of debt consolidation, it will combine all of your debts into one affordable monthly sum.

Of course, every debtor will have a different debt management program based on their budget and how much they owe.

Keep in mind that also, a notation will be put onto your credit report, showcasing that you’ve participated in a debt management plan.

This will remain on your credit report for at least 2 years after you’ve completed it.

That’s not to say that you can’t rebuild your credit rating after this, however.

You could take several steps to do this, including managing your savings and bank accounts, never missing payment, applying for a secured credit card, etc.

Other types of debt consolidation 

Along with a debt management program, your credit counsellor might advise you to take on another type of debt consolidation.

Ideal if you have a large amount of debt, it will make the repayment process that much simpler.

For example, you could:

Consider a debt consolidation loan 

A debt consolidation loan allows you to borrow money in order to pay off your credit card debts.

Although this comes with many benefits including paying off debts quicker, combining the debts together and lower interest rates, there are some downsides that you’ll also want to pay attention to.

For example, you must have a good credit rating, they often require collateral and they can put you into more debt if you don’t repay it in time.

Look into Debt consolidation with a line of credit

By using a line of credit or an overdraft, your credit card won’t have a predetermined limit.

This means that you’re able to make a minimum payment each month and budget more effectively.

Offering lower interest rates, flexibility and freedom like other forms of debt consolidation it has many positive advantages.

Despite this, there are also disadvantages that your credit counsellor will point out to you.

For example, your debt can be extended if you don’t discipline yourself and budget effectively.

Ask your creditors if you can lower your interest rates 

To help with debt repayment, you could also call your creditors directly and ask if you can get a reduced interest rate.

A possibility if you have a good credit score and are a loyal customer, this decreased rate could make your monthly repayments more affordable.

A proactive move, it will ensure that your interest rates don’t start to rack up and you can focus instead on repaying the debt that you owe.

Of course, this is a daunting step to take. So it’s vital that you know exactly what you should say.

But that’s not to say that it’s impossible – as you won’t know if it works unless you try it.

Just explain your financial situation clearly and how you’ll be able to pay off the debt each month.

Often, when people do this they will focus their efforts on their highest-interest credit card account first, before going through all of the rest in order.

A way of getting rid of your balance quickly, it’s commonly known as the avalanche method.

Just make sure that before you do this, you consult a debt professional who will talk you through the best ways to apply it to your unique situation.

Alternative strategies to use 

Alongside the above suggestions, with the help of a credit counsellor or Licensed Insolvency Trustee, you could get out of debt by using one of the following strategies.

Of course from the start, you need a strategy that works for you.

But whichever you go for, you’ll get a boost that  helps your situation:

A consumer proposal 

If you have debts below $250,000 this could be a great option for you.

Administered by your LIT, a Consumer Proposal helps you to deal with your debt and make a settlement that’s agreed by your creditors.

An alternative to bankruptcy, it’s very effective as you’ll be able to keep all of your assets while consolidating your debts into affordable repayments.

During this process, you’ll also stop being harassed by debt collectors – something that anyone in debt will undeniably appreciate.

File for bankruptcy

Alternatively, if the debts are far beyond your control, you could also consider filing for bankruptcy.

A method that many insolvent individuals take each year, it requires the seizure of high-ticket assets, such as your home and your car.

This isn’t something that you should opt for unless there are other debt repayment issues – so make sure that you seek professional advice before taking the leap.

Keep up with your repayments

Once you have set one of the above methods in motion, it’s time to stay on top of your payments each month.

You can do this by automating your payments and regularly checking your accounts to ensure that you’re in the clear.

Automating payments is easy, all you have to do is set up a standing order.

But once this is done, you still need to physically check to make sure there is enough money in there in the first place to cover the payment.

You don’t want to miss a credit card payment, so be proactive and manage your money to the best of your ability from the start.

Increase minimum payments

Once your finances start to get back on track, consider increasing your monthly minimum payments if you can.

By doing this, you’ll be able to pay off what you owe quicker and can avoid occurring further interest.

As with all debt repayment methods, it’s advisable that you only do this if you have the extra capital to do so – it’s not something that you should opt for if you already can’t cover the minimum payments.

Trim your expenses

Although this can fall under creating a budget, it’s an important move to make that deserves its own point.

Take a look at what you spend each month and assess whether you need to pay for certain things.

For example, if there is a subscription service that you no longer use, consider cancelling it.

These small changes can make all the difference to your monthly balance and will help you to focus on paying back the debts.

Stop relying on credit cards

When your debts are cleared, you might want to tackle the issue head-on by stopping relying on your credit cards.

Relying solely on cash and debit cards, you won’t be in trouble of racking up debt on the cards each month.

However, that’s not to say that you should go over the top with this either.

You still need to keep a healthy budget that ensures that you can afford necessary living expenses.

Contact Bankruptcy Canada today

Do you want to find out more about how to relieve credit card debt or another type of debt repayment?

Then don’t hesitate to get in contact with one of our Licensed Insolvency Trustees today.

With over 20 years of experience, we are your first port call when looking for advice surrounding debt relief solutions in Canada.