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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 Downward Spiral

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. 

Credit Card Minimum Payments 

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 PaymentFixed Payments
Debt Amount$5,000$5,000
Interest Rate19.99%19.99%
Payment Amount3% $350
Time to Pay off Debt20 years and 11 months1 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.

Credit Card Debt Warning Signs

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. 

You’ve Maxed Out Your Credit Cards

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. 

You Skip Bills to Pay Make Your Next Credit Card Payment

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.

You Don’t Have any Savings to Fall Back On

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. 

You Use More Than You Put Towards the Balance

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.

You’re Avoiding Paying Your Credit Card Bill

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. 

Credit Card Debt Relief Options

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:

  • Debt ConsolidationDebt consolidation involves consolidating all your credit card debt under a new larger loan that has a lower interest rate. You’ll not only be able to save on interest but you’ll only have one payment to look after. Moreover, you can negotiate your loan term so your monthly payments are more affordable.
  • Debt Settlement – A debt settlement involves having your creditor settle your debt for less than what you owe. You or your debt settlement company will negotiate with your creditors to have your debt reduced. For example, you may be able to negotiate a deal with your creditors where you pay a lump sum of $2,000 now in order to clear a debt of $5,000.
  • Debt Management Program – A debt management program involves consolidating all your unsecured debts. You’ll be required to make a single payment to your credit counsellor who will distribute the payments to your creditors. The goal of a DMP is to pay all your debts within a 5-year term. Moreover, your credit counsellor may be able to reduce your interest rate and the amount of debt you owe.
  • Consumer Proposal – A consumer proposal is the best chance you have of clearing your unsecured debts before bankruptcy. While it does not relieve you of all your debts, it does allow you to clear your debts by paying off a portion of it within a 3 -5 year term.
  • Bankruptcy – In extreme cases, your only option may be to declare bankruptcy. It will clear you off all your debt in as little as 9 months. While it may negatively affect your credit for 6-7 years, you’ll be able to have a fresh restart without your previous debts holding you down.
debt management options

Bottom Line

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.

Caitlin Wood, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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