How to pay off credit card debt
Credit cards can be a great tool when used properly. They often come with perks such as cashback or travel rewards and can go a long way in helping you build credit. However, quick and easy access to credit can also be dangerous. Credit card debt usually comes with an interest rate of around 20%, so if you aren’t careful, carrying a balance on your credit card can grow from a small, manageable balance to a seemingly insurmountable problem.
At Money Mentors, all-too-often we hear from clients who have let their credit card debt get out of control. At a fixed rate of 5%, our Orderly Payment of Debts program is a great option for someone who has built up a large amount of high-interest credit card debt.
However, it would be great if we could help people before they get to this point. As a non-profit, our goal is to educate and strengthen the financial knowledge, skills and confidence of Albertans. That’s why we offer free credit counselling throughout Alberta and provide financial education through our online courses.
Below, we have listed 4 effective steps to help you pay off credit card debt and get back in control of your finances.
Make a plan – understand your spending & create a budget
Proper financial planning is the most important step in paying off your credit card debt. Without a good understanding of where your money is going, it will be very difficult to make the changes required to start paying off those credit card bills.
In an ideal situation, you want the positive changes you are making now to carry forward into the rest of your life so that credit card debt is not something that troubles you again in the future. The best way to do that is to set up a plan that you can refer to throughout your financial journey.
It’s often inspiring to hear from past clients who have not only managed to pay off large amounts of debt, but who have additionally changed their money mindset and adopted new habits allowing them to use the money they were initially using for debt to put into a savings account.
Let us help
Not only do we offer a free downloadable spending sheet, but if you’d like to book a free counselling session, one of our credit counsellors will help you go through the spending sheet and fill it out. Give us a call.
Pay off one debt at a time
If you are carrying a balance on multiple credit cards, the first thing you should do is make sure you are paying the minimum on each balance at the very least. With that under control, you can then decide which credit card balance to target first.
There are two main schools of thought when it comes to choosing which to pay, and, conveniently for us here in Alberta, they both have cold, snowy names: the avalanche method and the snowball method.
The avalanche method
In the avalanche method, once you pay off the minimum amount owing on all your debts, you then target the credit card debt with the highest interest rate. Once you have paid that debt off, you then move on to the credit card debt with the next highest interest rate and so on. This method will result in you paying less interest over time since you are tackling the highest rates first.
Try our calculator!
We have a calculator that can help you with the avalanche method. It’s called ‘Roll Down Your Debts’ and our clients find it very helpful. Enter your credit card balances, interest rate and minimum payment. Try for free by clicking here.
The snowball method
In the snowball method, instead of focussing on interest rates, you look for the smallest balance and focus on paying that off first. Not only does this allow you to get a much-needed boost of dopamine as you close off those smaller accounts, but it then allows you to take the money you were using for those debt payments and instead apply it to the next balance, creating a snowball effect!
Automate your payments
A large credit card balance is often a symptom of a busy life. Whether you have kids going back to school, unexpected emergencies or upcoming holidays, people often use their credit cards as a quick and easy way of dealing with the many surprising twists and turns of life.
With that said, if your life does feel more chaotic than usual, it’s vital that you set up automatic payments on your credit card. Missing a payment can put a real dent in your spirit as well as your credit score. Setting up automatic payments can be done on most banking apps and websites. However, if you don’t like online banking, head into your local branch and get them to set up automatic payments for you.
When you’re trying to remember lots of different things, it can be very easy to forget when your payments are due. Whether you choose minimum, full or a set amount, automating your payments takes the stress off and allows you to focus on your financial plan.
Consolidate your debt
As mentioned in the introduction, our ideal scenario is for all Albertans to live financially literate lives. When it comes to credit, we try to make this a reality by providing free, in-depth courses such as Credit and Lending 101 or Credit Cross Training. We also create these Money Tips with helpful information for readers to manage their difficulties with a little guidance from our counsellors.
Credit Card debt can sometimes become so unmanageable that you need to think about a debt consolidation program. If this happens to you, there are a range of options available from consolidation loans to consumer proposals and bankruptcy. Every situation is unique – find out what debt solution is best for you.
At Money Mentors, we exclusively manage the Orderly Payment of Debts program on behalf of the Government of Alberta. With a fixed interest rate of 5%, many clients find peace of mind with our federally legislated program and access to accredited counsellors who provide guidance and support every step of the way.
Whichever option you choose, know that the advice you receive from credit counselling agencies like Money Mentors is unbiased with your best interests in mind. As a non-profit organization, we’re not in it for the money, but are here to help you manage your money better and create a healthier financial future.
Have questions?
Need more information or want to talk to an accredited financial counsellor for peace of mind? Let us help.
Call 1-888-294-0076 or book an appointment. It’s free for all Albertans.
