According to a recent credit report issued by Equifax Canada, consumer debt in Canada stood at $1.529 trillion as at the end of 2014, a rise of 7.7% from $1.42 trillion in 2013. This consumer debt was primarily acquired through credit cards.
The numbers when it comes to credit card debt in Canada are a cautionary tale. There is an urgent need to take steps to reduce personal credit card debt. The following five steps will help you to do so:
Start with one
Choose one credit card to pay off first depending on your short-term goals. If the goal it to pay off one card completely, start with one that has the lowest balance while keeping up with minimum payments on your other cards. If your goal is to boost your credit score, start with the one with the highest utilization rate. You can arrive at this rate by dividing the balance on it by the card’s limit. Your credit score takes a hit every time you use over 20% of your available balance, so reducing the utilization rate by even 20% could increase your credit score significantly. If your goal is to reduce credit card interest, pay off the one that attracts the highest interest first.
Apply for reduced interest rates
Sometimes, a phone call is enough to have your credit card interest rate reduced if your credit score is good which would be a score of 730 or higher. Long-time customers who pay on time can also get their interest rate reduced by a percentage point or two. This seemingly small margin can add up to an annual saving of hundreds of dollars.
Transfer your balance but exercise caution
Transferring your credit card balance can save you hundreds of dollars a year, but only if you make a commitment to paying off what you owe within an introductory window during which low interest rates are applied. Should this window close before you have cleared your balance, the interest rate will go up and you may end up owing more than you did to the company you transferred from. You will also need to avoid swiping this new card because low interest may not apply to new balances or purchases. You should also know that you may be charged a balance transfer fee of about 3 to 4% of the total transfer amount.
Make use of a peer-to-peer lender
Rather than swipe your credit card, explore the option of peer-to-peer lending. The way this works is that you go to websites where the service is offered and you take a loan with fixed interest rates that beat those of credit card companies by 20 to 30%. If you have a stable source of income and good credit score, you can borrow more than $25,000 at reduced rates.
Make at least two minimum payments every month
Credit card companies usually charge interest daily so the sooner you make a payment towards your credit card debt the better because you reduce your average daily balance and the interest it accumulates. Even on a tight budget, pay the monthly minimum and try to do so again in two weeks until you pay off the debt completely.
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