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Credit cards can be both a blessing and a curse; it all depends on how you use them. On one hand, they’re great for making large purchases, creating a credit score for yourself and are even great for when you need a little extra help until your next paycheque. But it’s when you start to completely rely on them that they become a curse. 

How Much Credit Card Debt is Normal?

As with any financial instrument, credit cards serve a purpose, and when used responsibly, they pose no threat to your finances. If you’re short on cash, they can be an indispensable tool to help you access credit conveniently and quickly.

However, problems arise when you rely on credit cards to cover most of your purchases, especially over a short time period. It can be very tempting to pull out a credit card every time you lack the money to pay for something – and before you know it, you’ve racked up a mountain of debt and put a big dent in your credit score. You can quickly find yourself distressed and overwhelmed with making even the minimum payment on your outstanding balance.

Average Debt by Age in Canada

Debt is present on the balance sheet of nearly every Canadian to some extent, but for some, the amount is excessive and can lead to financial instability.

A report from Equifax released in March of 2020 presents some enlightening data on Canadians’ average debt by age group. Use this chart to compare how severe your debt level is with the average person.

AgeAverage Debt (Q4 2019)
18-25$8,847
26-35$18,298
36-45$28,863
46-55$36,241
56-65$30,318
65+$16,491
Canada$23,760

Want to compare credit scores? Check out the average credit score in Canada by age.

How to Tell if You Have Too Much Credit Card Debt

Here are some red flags that indicate you may have taken on too much credit card debt:

  • You’re uncomfortable with the amount of debt you have – If you avert your eyes every time you open your latest credit card statement, you’ve probably accumulated too much debt. Being comfortable from a financial perspective means you’re confident in your ability to pay your bills, cover unexpected expenses, and contribute to a savings account, all while paying off any credit card debt. If you’re struggling to juggle all of these things, your credit card debt could be the culprit.
  • You can’t make your full monthly payment every month – You should strive to pay your credit card balance in full at the end of each month; doing so will help you avoid interest charges. If you’re unable to clear the entire balance, you’ve likely used your credit card too liberally.
  • Your credit utilization ratio is too high – This ratio shows the amount of debt you have outstanding relative to your credit limit. If it’s too high, your credit score will be affected negatively. A good rule of thumb is to keep your credit utilization below 30%.
  • Your debt-to-income ratio is too high – This debt-to-income ratio shows the amount of debt you have outstanding relative to your gross monthly income. Lenders widely use this metric to assess whether to approve you for a loan. You should aim to keep this ratio below 36%.
Learn How to Tackle Debt

Credit Card Debt Warning Signs

Do you have too much credit card debt? Are you addicted to your credit cards? Or are you unsure of how to answer that question? We’ve compiled the top reasons why you might have too much credit card debt.

Denial is Your Best Friend

Denial is a powerful resource for those with too much credit card debt. Do you find yourself constantly choosing to forget or ignore the fact that you have credit card debt especially when you go to charge something? Do you purposefully not open your credit card statements? Do you lie to the people in your life who care about you because you don’t want them to know about your credit card debt?

If you have answered yes to all or most of these questions then you’re probably in denial about your credit card debt and need to take control of it now.

You Choose to Not Look at Your Balances

While you are completely aware that you do in fact have a credit card and it probably has a pretty large balance on it, you never double-check it. You always pay the minimum so the total balance doesn’t really matter to you.

Your Savings Doesn’t Exist

Saving money is not an option for you because you have none. Once you’ve paid for all your monthly bills and the minimum payments on your credit cards there is nothing left to save. This will of course only make your credit card debt worse as you will have nothing to fall back on in case of any kind of emergency, financial, medical or otherwise.

Learn more about how much of your income you should be saving

A Second Job is Sometimes Your Only Option

Sometimes you have to work a second job or take overtime hours at your first job to help pay off your debts.

Your Cards Are Maxed Out

Using your credit cards until they are maxed out will only cause more problems in the future, there are lots of hidden fees and the interest that such a large amount of debt acquires will become a burden that you won’t be able to deal with.

Here’s what you can do if you’ve maxed out your credit cards.

You Use One Card to Pay Off Another

If you are taking cash advances from one of your credit cards in order to pay off another that has a high balance. This is particularly troubling as it will be almost impossible for you to pay off any of your credit cards with this method.

You’re Being Rejected For New Credit

You’ve tried to apply for a new credit card because your other ones are maxed out. The amount of debt you already have is way too high and you keep on getting rejected.

The Minimum Payment Trap is Creating More Debt

One of the most common ways you can let your credit card debt get out of control is to rely on minimum payments. Most credit cards require you to make a minimum payment each month on your outstanding balance. The minimum payment is usually a percentage of your balance, but it can also be a fixed amount.

Though it’s wise to pay off your credit card balance in full each month, many people opt to pay only the minimum amount. Because there are no immediate consequences for paying only the minimum, people are easily tempted to defer payment into the future. Some people only contribute the minimum payment because they lack money for various reasons or are preoccupied with paying for other expenses.

Check out these 8 ways on reducing your credit card debt.

Don’t Forget About Compound Interest

Making only the minimum payment on your credit card balance can quickly lead to serious debt problems. The danger comes with compound interest. In the case of credit card debt, compound interest is the interest that is calculated based on the amount you borrowed plus the accumulated interest from previous periods. To put it another way, you’re being charged interest on any interest charges you don’t pay off. 

Credit cards are notorious for their interest charges, which are compounded daily. The interest can be misleading as your credit card balance appears small and insignificant in the beginning. However, over time the outstanding balance grows exponentially until you find yourself unable to manage the payments.  

If you struggle with credit card debt, try opting for a low-interest credit card

How to Get Out of Credit Card Debt

There are a variety of ways to get yourself out of credit card debt. The ideal plan will depend on the severity of your situation.

  • Create a budget and pay more than your minimum payment – Creating a realistic and effective budget is a great way to bring down your credit card debt. You can utilize a spreadsheet or budgeting app to help manage your expenses. Track your expenses for a few months to become familiar with your spending habits and see where you can cut back so that you can pay more than the minimum on your credit card balance.
  • Negotiate a lower rate with your creditors – Contact your creditors to see if you can negotiate a lower interest rate. Sometimes reaching out and being candid about your financial situation can work in your favour, resulting in a much more manageable debt repayment plan.
  • Credit card balance transfer – This technique allows you to transfer your existing credit card balance onto a new credit card that offers a promotion for a low or 0% interest rate for a specific time. Once the promotional period ends, the default rate kicks in. Ensure you pay off the entire transferred balance before the promotional period ends, as balance transfer cards usually come with higher interest rates than regular credit cards.
  • Debt consolidation loan – Debt consolidation is where you obtain a loan to pay off your existing debt, including credit cards. In doing so, you’re merging all your current eligible debt into one combined loan. If done correctly, the payments on a debt consolidation loan should be more manageable for you to service than if you had multiple loans.
  • Consumer proposal – a consumer proposal is a debt relief program filed with a Licensed Insolvency Trustee to settle debt. Under this program, you’ll be able to negotiate your debt payments to pay less than you currently owe. 
  • Bankruptcy – Filing for bankruptcy is the last resort and should only be utilized if there’s no possibility of you paying your debt. Going through bankruptcy will eliminate your credit card debt, giving you a fresh start to rebuild your credit. Typically, bankruptcy is removed from your credit report after 6 or 7 years.
debt management options

Preventing Credit Card Debt

While there are ways to overcome credit card debt problems, taking steps to avoid them in the first place is far more manageable. Here are some tips to reduce the risk of falling into a credit card debt trap:

  • Have an emergency fundSet aside a sum of money each month for unforeseen expenses so that you don’t have to depend on your credit card to pay for them. 
  • Don’t rely on your minimum payment – Pay off as much of your credit card debt as possible during each month. Doing so will limit the amount of interest that accrues on your balance.
  • Don’t take cash advances – You should avoid cash advances as they are expensive transactions. They come with high-interest rates, fees, and there’s no grace period, which means interest begins to accrue from the day you withdraw the cash. 
  • Limit your available credit limit – Contact your bank and ask them to reduce your credit limit. An imposed credit limit will prevent you from amassing too much debt on your card. 
  • Limit the number of credit cards you have – The fewer credit cards you have at your disposal, the less debt you can accumulate. Ideally, you should only have one credit card in your possession.

Frequently Asked Questions

Can I get rid of my credit card debt without paying?

The only way to eliminate credit card debt without paying is to file for bankruptcy, which should not be your first option due to the disastrous effect it will have on your credit score. You can also negotiate with creditors and convince them to forgive a portion of your debt.

How much credit card debt is ok when applying for a mortgage?

Lenders view credit card debt as one component of your total debt balance. One of the measures lenders use when determining whether to approve your mortgage application is the total debt service (TDS) ratio:  TDS = Housing and vehicle expenses + Credit card payments + Other loans / Annual income. When you factor in your credit card payments, this ratio should be lower than 40%. If it’s higher than this amount, your lender may not feel confident in your ability to make mortgage payments. You can use this ratio to assess if your credit card debt will hinder your ability to acquire a mortgage. The credit utilization ratio is another tool you can use to assess your chances of securing a mortgage, as it accounts for your credit card debt. Ideally, this ratio should be lower than 30%. 

What can I do if I can’t afford to make my credit card payments?

You should seek help from a credit counselling agency, which can negotiate better terms and interest rates with creditors on your behalf; they may be able to structure a more manageable payment plan for you. If that fails, you should consider using a consumer proposal or filing for bankruptcy.

Get The Help You Need

If you’re currently struggling with excessive credit card debt and aren’t sure what your first step should be, Loans Canada can help. We can help you compare debt relief options and event match you with a service provider that meets your needs. 

Mark Gregorski avatar on Loans Canada
Mark Gregorski

Mark is a writer who specializes in writing content for companies in the financial services industry. He has written articles about personal finance, mortgages, and real estate and is passionate about educating people on how to make smart financial decisions. Mark graduated from the Northern Alberta Institute of Technology with a degree in finance and has more than ten years' experience as an accountant. Outside of writing, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.

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