Remember the surge of excitement that came with getting your first credit card?
It felt like a rite of passage; that somehow you were finally an adult. Over the years the thrill of getting your credit card statement has decreased. In fact, for a great many Canadians, just the thought of their credit card bill can induce panic and dread.
This past March, TransUnion released a report stated ‘of the approximately 43 million credit cards in the market, the number of open and active credit cards used by Canadians had dropped by 800,000 in 2016’.
However, the amount owed on these credit cards had increased by 2.3 percent! Despite the fact Canadians are using fewer credit cards they are in fact owing more on the cards they do use. According to the same TransUnion report, non-mortgage debt actually increased 2.18 percent in 2016, bringing the average debt to $21,912.
Credit Card Debt: The Good, the Bad, and the Ugly
When used responsibly, with the balance paid off quickly, your credit cards can actually help build or strengthen your credit score. For someone just starting out this can be a useful tool in laying the groundwork to prove they are a good credit risk when applying for other forms of credit like a car loan, line of credit or even a mortgage.
However, the convenience of credit cards mixed with human nature can be a slippery slope that quickly leads to debt. One of the real dangers of not paying off your credit cards in a timely manner is that you will be incurring interest on the unpaid balance every month until the balance is zero.
BMO’s 2015 Credit Card Report showed that 1/3 of card holders carry their balance over from month to month. Furthermore, over 1/2 of all cardholders use their cards to make most of their purchases from groceries and gas to other living expenses.
The BMO report also asserted that 26 percent of Canadian card holders are caught in a cycle of debt that has them making their credit card payments with ‘available funds’ then using their credit cards to cover other living expenses.
So what happens when you start missing payments? Unfortunately, your creditors will not be ignored, nor will they just give up and go away. The TransUnion report found the number of balances at least 90 days past due had increased to ‘4.21 percent for the whole country’ in the last quarter of 2016.
According to InvestorED.ca, there are serious repercussions to ignoring your debt.
When you stop making your payments your creditor will inform the credit bureaus thus reducing your rating; making it harder to get credit in the future. This can stay on your record for 6 years.
When you miss payments the credit card company will raise your interest rates and if you’ve missed several payments they may freeze your credit card so you cannot use it until the balance is paid.
If your credit card is issued by the same financial institution you normally bank with, you could have money taken from your accounts to cover the outstanding payment.
If your card goes unpaid over a certain period of time, and you have not attempted to cooperate with your creditors to make any form of payment, your account will be turned over to a collections agency.
Getting off the Debt Merry Go Round
Is it any shock that Credit Card Debt is a great source of stress for countless Canadians? As the debt grows, compounded by higher interest rates and fees, it becomes harder to make even your minimum payment; a payment that may not even cover the interest owed let alone your principle.
So how do you stop the cycle of debt? There are a number of companies offering debt counselling and debt relief services. When seeking debt help it is best to find a reputable, compassionate, and comprehensive company like 4 Pillars Burnaby Debt Solutions. 4 Pillars has been assisting Canadians in debt for over 15 years. In fact, they create strategies to settle almost a million dollars in debt each day.
4 Pillars is a full-service debt relief company that will help create the best debt settlement strategy for your situation, create a plan to reduce your debt by up to 80 percent, and see you debt free within five years. While you are paying off your debt, 4 Pillars will be working with you to rebuild and strengthen your credit score, creating a workable budget, and educating you on how to stay out of debt. All of this so when your debt is paid off you will be prepared to meet your future financial goals.
When you meet with a 4 Pillars Debt Specialist they will analyze your situation, discuss your financial goals, create an individualized debt settlement strategy, and present options that will work best for you.
Consolidation, Consumer Proposal, Bankruptcy
If your credit rating is still in good shape and you have assets or a reliable co-signature, a Consolidation Loan may be your best option. The advantage of a Consolidation Loan is your creditors will be paid off and you just have one loan payment, at a lower interest rate and your credit rating will not be impacted.
If consolidation isn’t going to work for you, filing a Consumer Proposal may be your best option. Your 4 Pillars Burnaby Debt Specialist will work with a Licensed Insolvency Trustee presenting a plan to allow you to pay back a portion of what you owe. If the proposal is accepted you will have up to five years to pay it off. During this time your 4 Pillars Debt Specialist will also be helping you rebuild your credit rating and giving you the tools to keep you from falling back into debt.
Bankruptcy is usually only considered as a last resort. The financial repercussions are more far reaching than a consumer proposal. Bankruptcy is a legal process administered through a Licensed Insolvency Trustee to have your consumer debt dealt with under the protection of Bankruptcy. Bankruptcy is on your record permanently, your credit score will be dropped to an R9 (the lowest score) and will remain on there for 6 years after you are discharged. If you are considering Bankruptcy, speak with a 4 Pillars Debt Specialist first. They may be able to find you a less drastic solution.
In Summary
As Canadians, we love our credit cards. However, it is easy to fall into credit card debt if you’re not paying attention. Credit Cards are not free money. By paying off your balance each month you will avoid interest charges. If you need to carry over your balance don’t just make the minimum payment (no matter how tempting) make the largest payment you can to ensure you’re paying both the interest and a good piece of the principle. And finally, be wary of loyalty cards that offer travel points, cash back or any other type of reward. It is easy to ignore rates and fees when you’re only focused on the reward. In other words, if you’re conscientious with your credit cards and paying them off as quickly as possible, you will avoid the pitfalls of Credit Card Debt and enjoy the advantages of a strong credit rating.
About the Author
Gurinder Dhaliwal is a Debt Specialist with 4 Pillars in Burnaby, BC. If you have any questions about Credit Card Debt or if you’d like to discuss your debt relief options call Gurinder at (778) 340-4002 or log onto to 4Pillars.ca to find a Debt Specialist near you.
