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Recognizing credit card debt before it gets out of hand is extremely difficult and more often than not we only realize there’s a problem before it’s too late. If you currently have some credit card debt and are making the minimum payments each month, you probably aren’t too worried and feel like you’ve got everything under control. The problem is most issues with credit card debt start long before missed payments. Unfortunately having a significant amount of credit card debt lays the perfect foundation for other serious financial problems.
The more you ignore your increasing credit card bills the more they will grow. Every month that goes by, even if you’ve stopped making purchases with them, your debt continues to be compounded by high-interest rates. Even if you make the minimum payments on time each month and think that you’re keeping on top of your debts, it will still take you years to become debt-free. The only function of a minimum payment is to continue to keep you in debt to your credit card company for as long as possible.
For example, if you have a credit card debt of $5,000, how long will it take you to pay off your credit card debt if you make minimum payments versus a fixed monthly payment.
Minimum Payment | Fixed Payments | |
Debt Amount | $5,000 | $5,000 |
Interest Rate | 19.99% | 19.99% |
Payment Amount | 3% | $350 |
Time to Pay off Debt | 20 years and 11 months | 1 year and 5 months |
Total Amount Paid | $10,983.91 | $5,758.33 |
Interest Paid | $5,983.91 | $758.33 |
Once you’ve been sucked into the minimum payment trap you’ll have trouble being able to afford anything else. This is how the downward spiral into deep credit card debt continues when an unexpected expense comes along. If you’re already having trouble paying off your credit cards then you probably don’t have any extra money to cover these expenses. So perhaps you’ll charge it all and forget about it. Then all of sudden you’re being charged more interest and you can’t afford to even make the minimum payment and you start to miss payments altogether.
Unfortunately, this is a scenario that happens far too often. Debt starts to snowball and you, all of a sudden out of nowhere, have some serious credit card debt problems.
Check out if you have too much credit card debt.
One of the ways you can avoid falling into the minimum payment trap is by familiarizing yourself with some common warning signs of too much credit card debt. If you recognize any of the following signs, it may be time you took a step back from your credit cards and evaluate your finances.
If you currently have one or more maxed-out credit cards – it’s a sign that you’re already struggling with managing your debts. It’s important you take action now by readjusting your budget and halting your credit transaction to help pay off your credit card debt. If you’re unable to create a plan, consider speaking to a credit counsellor. They can offer you customized debt relief solutions based on your current debt and finances.
Your credit card debt may be getting out of control if you can’t afford to pay all of your bills each month. Choosing to skip one bill to cover another is never a good sign. Moreover, too many missed payments can lead to harsher penalties including a hit to your credit score, late fees and your debt being sold to a collection agency. If you’re strapped for cash, consider contacting your creditor before you miss the payment. Oftentimes, they’ll be willing to work with you and may offer you options that can lessen your debt loan temporarily. This includes readjusting your payment terms, lower interest rates or even payment deferrals.
Another warning sign of credit card debt is if you’ve depleted your savings or if you need to dip into your retirement fund, emergency fund or saving account on a regular basis in order to pay your credit card bills. If you’re forced to rely on different credit products in financial emergencies, you should seek help immediately. It can take a single expense to push you into a spiral of uncontrollable debt.
If you find you constantly have to go without something important like insurance, food or electricity because you need to use all that money to pay your credit card bills, it means you’re spending more than you’re paying. When your income isn’t enough to cover your credit card balance, it means you’re using more than you can afford. When you spend more than you’re able to pay on your credit card, your balance will never have a chance to go down. It will continue to accumulate interest and add to your growing credit card debt. It’s essential that you stop making purchases on your credit card when trying to reign in your debt.
Check out how you can pay off your credit card balance with a loan.
Another sign you may be struggling with your credit card debt is when you use a credit card balance transfer, cash advance, or payday loan to pay off your credit card bills. The problem with this is that you’re not actually paying down the balance, you’re simply moving the payment due date. While these options can provide temporary relief, it often comes with interest rates that make your debt more expensive and unaffordable.
There are many debt relief options available in Canada. Depending on your level of debt and income, one option will offer you better results than the other. Try speaking to a credit counsellor to help you evaluate your financial situation and figure out which solution is right for you. Some common debt relief options include:
You might feel like some of these warning signs are a bit extreme and that you’ll never let your credit card debt spiral out of control. But that’s the problem; most people don’t even realize it’s happening. We want you to be debt-free, so keep an eye on your credit cards and take control of your finances.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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