In Canada, many people struggle with credit card debt.
Part of the reason behind this is that they don’t act to restructure their debt, leaving them with high-interest payments that can be difficult to manage.
Unfortunately, many people get into a cycle of unaffordable credit card debts, leading to all kinds of complications, with further borrowing needed to afford basic expenses.
If you’re dealing with credit card debts, learn more about why high credit card debt should be restructured urgently to help you get a handle on your finances.
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High credit card debt and compound interest
The higher your interest rate, the higher your monthly repayments will be.
It will also take you longer to repay your debt, with a larger amount owed overall.
Credit card interested is calculated daily, not monthly or annually as you might expect.
This is known as compound interest.
Compound interest can be damaging, especially if you have a high balance to begin with.
Compound interest is added to your principal borrowed, which means you end up paying interest on top of interest.
What makes this worse is that you will be charged interest daily, with your outstanding balance continuing to grow.
Here’s an example of how compound interest works:
You have a credit card with a $5,000 balance and an APR of 19.5%.
The daily interest rate is 0.053% (19.5%/365 days).
If you multiply by 0.053% = 2.65.
This means the interest on the first day is $2.65.
While the amount isn’t much, it will keep growing, as you’ll not only continue to pay interest on your balance but the interest too.
This can soon make your borrowing unaffordable.
This type of interest can be manageable if you pay off your balance during your grace period, which is typically 21-30 days.
But if you can’t repay your balance in full, that’s when the additional interest comes in and starts building up.
Restructuring credit card debt
The sooner you restructure your credit card debt, the better things will be for your finances.
You could apply for a 0% interest credit card, but these can be difficult to obtain if you have poor credit.
One way to tackle high credit card debt is to file for a consumer proposal, where a Licensed Insolvency Trustee will be able to make an agreement with your creditors on your behalf that could see you reduce your interest, or stop it completely.
The sooner you find a solution to your debts, the sooner you can start over.
Getting the help you need to deal with debt
If your debts are becoming unmanageable, or you’re faced with interest rates you know you can’t afford, it’s time to get help and find a solution to help you get debt-free.
At Bankruptcy Canada, our Licensed Insolvency Trustees can help find the most appropriate solution to help you clear your debts and lift a weight off of your shoulders.
Get in touch with us today on (877) 879-4770 and let us help you with your high credit card debt.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?