Stop Juggling Credit Cards Debts

June 13, 2014 | Category: ,

How to Stop Juggling Credit Cards Debts

Too Many Credit Cards, Too Much Debt

Today, many Canadians are over their heads in debt. Much of this debt comes from credit cards. In fact, credit cards now account for the second highest debt load in Canada (30%). In 2012, 40% of Canadian families carried an outstanding balance on their credit cards with a median amount of $3,000. This amount is up 11.1% since 2005. According to TransUnion, the average Canadian has $26,935 in consumer debt.

There are a number of reasons why having high amounts of debt – especially credit cards debts – can be a problem.

High Interest Rates

Many credit cards debts have occurred due to very high interest rates. This is especially true for many retail store credit cards. These card often have interest rates of around 20% or more. Carrying a balance on a card with such a high interest rate can be incredibly expensive.

For example, assume that you buy a $1,000 television and use a store credit card to pay for it. If you only make the minimum payment on the card each month (usually around $10) it will take you almost 20 years to pay off that TV. Plus, you’ll end up paying more than $1,900 in interest if your card has an interest rate of 18%. Is your TV worth 20 years and an extra $1,900? Probably not.

No Room for Error

Some people find themselves in a situation where they are using credit cards to pay off other credit cards and only making minimum payments each month. Not only does this end up costing you a great deal of money, but it also gives you zero room for error. If something were to happen (such as a job loss, unexpected repair bill or another emergency) you could suddenly find yourself unable to keep up with these payments.

You might even end up overwhelmed by debt and soon have creditors calling you to collect. This obviously isn’t a good situation to be in.

It Hurts your Credit Rating

If you have too much debt, it can seriously affect your credit rating. When you apply for a loan (such as a car loan or a mortgage) the lender will look into your credit report and see how much debt you currently have. If you have a high amount of debt, the lender could consider you a riskier option. This means that you might have to pay a much higher interest rate than you expected. It may also means that you may be unable to get the loan that you want or need.

If you have enough debt that you find yourself missing payments, your credit rating will be seriously impacted. This can not only make it difficult for you to get a loan, but it can also make it much tougher to rent an apartment, get a job or do much of anything else that involves your credit rating.

How to Avoid Credit Card Debt

Avoiding credit card debt is a wise decision. Here are a few ways that you can prevent yourself from getting into credit card trouble:

  • Only charge what you can afford

  • Pay your balance in full every month

    • If this isn’t possible, pay as much as you can afford and always pay more than the minimum payment. If necessary, adjust your monthly budget in order to increase your payments.
  • Don’t miss payments

  • Avoid paying one card with another for no reason

    • If you decide to transfer your credit card debt to another card, do it to lower the amount of interest you pay, not just to avoid making a payment.
  • Limit the number of credit cards you have

  • Understand your interest rate and the terms or your credit card

    • Always read and understand the documentation that comes with your card.

For more information visit Prudent’s credit sense. Click here.

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