Why High Credit Card Debt should be Restructured Urgently
Many Canadians struggle with credit card debt each year and often do not act quickly enough to restructure this debt and avoid financial disaster.
Why is credit card debt so financially crippling?
It`s all down to the interest and how it is calculated.
Most people are not aware that credit card interest is calculated DAILY rather than monthly or annually and it is COMPOUND interest. This all spells bad news if you carry a balance on your credit cards and can spell disaster if you carry a large balance!
Many people don’t know how the compound interest on a credit card is worked out and credit card companies take advantage of this fact.
Compound interest charges are added to the principal borrowed so you are then paying interest on the interest and the debt very quickly grows. To make matters worse the compound interest is then charged on a daily basis!
Let’s look at an example as to how this impacts what you pay back.
Imagine a credit card with a $10,000 balance and an APR of 19.5%.
The daily interest rate is 0.053% (19.5%/365 days).
Multiply $10,000 by 0.053% = $5.30. Therefore first day`s interest is $5.30.
This may not seem excessive but on the second day the balance on the card is $10005.30 and the interest is charged on this higher figure. So it goes on day after day getting progressively worse.
You would keep paying interest on the interest until the debt is paid off.
Fortunately credit card lenders do provide some relief by offering a ‘grace period’. If the balance is paid off during the grace period then no interest is charged. The grace period is usually between 21 days to 30 days.
Unfortunately many Canadians cannot pay off their credit card debt in the grace period and the balance gets steadily higher. Sometimes payments may even be missed and penalties are charged on top of the interest!
Rather than watching credit card debt racing rapidly towards financial disaster debtors should employ a debt restructuring strategy as soon as possible to avoid bankruptcy. One such option may be to file a CONSUMER PROPOSAL where the debt is paid off interest free and where a portion the principle amount owing is often forgiven. Detailed information on consumer proposals may be found in other articles on this web site.
If you live in Burnaby, Coquitlam or Westminster and want to know more about debt settlement options please contact Gurinder Dhaliwal by visiting my Burnaby website or calling me directly at 778-340-4002 to arrange for a free consultation to review your options.
