Credit Card Debt Advice: All Your Options Explained

According to TransUnion’s most recent numbers, the average Canadian owes approximately $3,300 in credit card debt. While this may not seem like a lot, it is important that averages can often skew statistics. For example, in Canada, approximately 30% of Canadians are completely debt free.

When you factor out those who have no debt and those with very low amounts of credit card debt, it wildly skews the number for those who unfortunately carry large amounts of credit card debt every month.

In this article, we will cover credit card debt advice, including some of the most frequently asked questions related to credit card debt relief.

The credit card debt relief options:

  • Budgeting

    If you have available cash, you can certainly look at budgeting your way off your credit card debt. If you want to budget and pay off credit card debt faster, we recommend looking into the Debt Avalanche or Debt Snowball methods.

  • Put simply, the debt avalanche method has you focus on your highest interest rate debt first (which is usually your credit card debt), and the debt snowball method has you focusing off on the lowest balance first.

  • Debt Consolidation

    This involves applying for a consolidation loan, usually with lower interest rates, to pay off any credit card balances you may have. This typically results in a reduction of not just your interest rate, but the monthly payment you are required to make a well.

  • Depending on how credit card balance it is possible your minimum monthly payments might actually increase.

  • Debt Management Plan

    Credit counseling companies offer debt management plans, or DMPs for short. They can be a form of credit card debt relief as they will typically cut your interest rates to substantially lower than they are. They work by contacting a credit counselor who will implement the DMP for you.

  • A debt management plan can be one of the most expensive forms of debt restructuring. Your interest charges and interest rate and usually reduced significantly, but other options may be able to achieve better results.

  • We wrote a comprehensive article on credit counseling. Unfortunately, this process does negatively impact your credit score.

  • Debt Settlement

    This is what most people think of when they think about debt relief programs. A debt settlement program typically involves hiring a debt settlement company to assist you in negotiating directly with each credit card company. This is typically done on an informal basis, unlike a consumer proposal or bankruptcy, which are formal debt relief options.

  • Because debt settlement is one of the most popular debt relief options, it should be approached cautiously. We wrote an article on debt settlement myths to tackle some of these.

  • Unlike debt consolidation, debt settlement typically requires a lump sum of cash and because of this is not the best way to pay off credit card debt unless you have access to a stockpile of cash. Your credit score will be impacted here as well.

  • Consumer proposal

    The first of the formal debt restructuring options to help with credit cards. A consumer proposal is a process that involves an insolvency trustee. The licensed insolvency trustee is essentially a referee that stands between you and your creditors. You would work with all unsecured creditors collectively and present them with the amount you wish to offer to repay them.

  • The consumer proposal typically involves offering your creditors more than they would get if you filed bankruptcy and cuts the interest rate to 0%. Of course, your credit score is affected here as well, but with the right debt help, you can begin rebuilding your credit and fix your credit report right away.

  • Bankruptcy

    Like a consumer proposal, bankruptcy is a formal option in dealing with debt incurred with credit cards and other unsecured debts, including CRA debt. To get out of debt with bankruptcy, an insolvency trustee will be required for you to file a bankruptcy.

  • A bankruptcy ranges from 9 to 36 months, and the monthly payment is based upon your income and assets. Bankruptcy typically only includes unsecured debt, such as credit cards, lines of credit, and personal loans. But can include secured debts if you are willing to surrender the asset the secured debt is attached to.

  • To officially get out of debt with bankruptcy, you must be fully discharged. This includes making your payments every month, attending your credit counseling sessions, and submitting your income and expense forms.

Conclusion

If you are struggling with credit card debt, there is no shortage of help available. However, it’s important to remember that each provider has its own program and will work differently on your behalf, depending on the type of situation you find yourself in.

For example, if you owe a bank money but have also borrowed from an alternative lender or used a credit counseling company to consolidate debts, it would be wise to speak with an unbiased third party to determine your best course of action.

We want everyone who reaches our site feeling overwhelmed by their finances and looking for assistance to feel supported every step of the way. This can include speaking one-on-one with a debt professional about how they might be able to get

FAQs

The top three places to start when trying to clear credit card debt are with paying down balances, making payments on time, and avoiding major purchases. However, the best way to clear credit card debt comes from following a realistic budget that includes a plan for paying off your debts in full and on time.

However, what happens if you are unable to pay additional amounts on your debt? This is where the options listed above come into play. They will help create a debt repayment plan and usually help reduce the minimum payments you are required to make.

Before you can figure out how to pay off your credit card debt, you have to decide if that is even the best course of action.

Many people carrying large amounts of “consumer debt” would be better served by focusing on the lowest balance credit card debt vs focusing on the highest interest rate debt first. This is because the debt snowball method has been shown to be more successful than the debt avalanche method for most people.

Debt repayment plans need to be designed for humans, not based on math.

Yes, there are many credit & debt relief programs that exist. They are outlined above.

In every option except for bankruptcy, you or a company you work with your creditors to negotiate a lower interest rate, a lower minimum payment, and/or a reduction in principle. A reduction in principle is typically not available in a credit counseling program and is typically only possible in either a debt settlement or consumer proposal process.

Absolutely! Becoming credit card debt-free is typically easier than people believe. While not without consequences, several programs can assist in helping you reduce your minimum payments. Typically your credit report will be impacted by any option that involves paying lower a reduced principal amount.

This isn’t always a negative, though, as most consumers in a financial situation where they cannot pay off their debts cannot use their credit even if they wanted to. And restructuring will allow them to effectively pay back what they can to their creditors instead of continuing to be stuck living paycheck to paycheck.

There are no options in Canada that you can get rid of credit card debt without paying. You could stop paying your payments; however, the interest charges would continue to accrue. This would leave you vulnerable to legal action as well.

Unless connected to criminal activity, owing money in Canada is not a criminal act. Meaning that you can stop paying your credit cards anytime you want. This wouldn’t be without consequence, though. Your creditors could send you to collections and take legal action against you, leading to garnishment and/or a seizure of assets.

We typically recommend dealing with your debt as soon as you realize you a struggling. This will allow for an effective repayment plan to be put in place.

The best way to tackle any debt really depends on your own individualized financial situation. We highly recommend speaking with a debt professional who can help you review all options and show you how you can reduce the high-interest debt you have and what options are available to consolidate your debts into one low monthly payment and what options can help reduce the balance owing.

Every lender is different, however, the average reduction our clients see is 73%. Some are much higher, and some are lower. Each situation is different, and all lending companies are different.

By asking, of course! We recommend speaking with an unbiased professional who can help review all of your debt help options so you can pay back what you owe but with payments that actually make sense for the money you take in.

Most debt help companies, including ours, offer free consultations for anyone struggling with debt and looking for the best program to help them out. However, some companies charge a small fee to speak with them initially.

We don’t believe in this practice and will never charge someone for a consultation.

There is no magic solution. The options listed above all come with pros and cons. We recommend reviewing your financial affairs and determining what you can afford. If you believe you can be completely debt-free (excluding mortgages) within a 5 year period, you are probably doing things right and don’t require professional help.

If it takes you longer than this, we highly recommend reaching out for help.

Many credit cards will let you make a one-time payment that fully removes the debt owed if there has been a history of non payments. This is known as debt settlement, and we have described it above.

There are two main ways to get help paying off your credit card debt. The first is to reach out to each different financial services provider directly.

This would involve contacting:

  • Your bank,
  • Alternative lenders,
  • A credit counselor,
  • A debt settlement company,
  • An insolvency trustee

It is also important to note that they all have a different program within each section of these companies, which may differ in each category. For example, each bank has different lending rules, each credit counselor might review your situation differently, debt settlement companies vary widely in how they do things and the success they can help you achieve, and every trustee interprets the rules differently. Also, it should be noted that many of the companies above work directly or indirectly for your creditors and can often have a conflict of interest.

To save yourself time & remove that conflict of interest

Working with a firm like ours will save you a significant amount of time, remove the conflict of interest other providers face, and ensure you get the best outcome possible. How?

We work exclusively for you. Never the creditors.

Our only goal is to help you deal with your debts, obtain the lowest possible payment based upon your situation, and ensure you can see the financial success we believe everyone should have.

Yes. Several programs can help write off debt and reduce your payments. We’ve written about them above!

Debt Relief Specialist

This article was written by David Moffatt, a Debt Relief Expert. He has helped assist in creating plans that have helped save Nova Scotia residents over $30 million dollars of consumer and tax debt since 2015. We believe that no consumer should have to struggle with the stress of overwhelming debt. Our debt restructuring strategies can help you cut your debt by up to 80%.

If you are struggling with debt please reach out. It hurts to continue to suffer financially. Halifax Debt Freedom services Halifax, Dartmouth, BedfordSackville the entirety of HRM, and all of Nova Scotia.