It’s well past the holiday season and we sincerely hope you are not still chipping away at any credit card balance you may have racked up. There isn’t any financial case to be made for carrying a credit card balance – the minimum payment trap combined with sky-high interest rates ensures that you will likely still be paying for Christmas come Canada Day! If you spent too much you have to deal with it as quickly as possible. Here are five action items to get you started right away.
1. If you are carrying a balance, the first step is to put the card(s) away. Whether you put them in the food processor or just temporarily turn them off (our recommendation), you need to own up to your mistake and not add any more fuel to the fire. If it’s the case where you have no choice but to use the card (a prepayment for example) make sure to make a payment to cover that charge right away.
2. Take a minute to fully understand the consequences of a credit card balance. Search out the details of your credit card statement until your find the section that tells you exactly how many years it will take to eliminate that balance with minimum payments. While you are at it, make sure to confirm the interest charge for that month and just how little of your payment is actually going toward reducing the balance. It can be a bit shocking, but also quite motivating! The government has a great online calculator for you to easily analyze different repayment alternatives.
3. Plan your repayment attack. Making a few random spending sacrifices and hoping that you will have a little more left at the end of the month to pay towards your card is wishful thinking. You need to figure out ASAP the maximum amount you can throw at your credit card debt every month and chart out when you are going to be debt-free. Set up an automatic transfer from your bank account to your card every payday and make that money invisible – you can’t spend what you can’t see!
4. Investigate balance-transfer credit card options... but only if you have a plan and are confident you can pay off the balance within the prescribed period! A balance transfer card shifts your debt to a new card (for little or no fee) which offers a limited time period (usually 6 -12 months) with a very low-interest rate (often 0%) to pay off the balance.
This cuts your interest expense to zero and ensures that 100% of your payment goes to reducing the balance. However, you have to be very disciplined and have the income to make regular payments. The card company is literally banking on you to fail and hopes you will miss the payment deadline, because that will trigger an avalanche of penalties, fees and interest charges that will put you worse off than ever!
5. Pick up the phone and call your card company. It might be more possible and easier than you think to actually negotiate a lower interest rate on your credit card. If you have had a card for a while and have been carrying a balance and making the minimum payments, you are a valued customer! Your card issuer is very interested in keeping your business and may be willing to negotiate.
You will have to get through to the right people and know what to say, but 15 or 20 minutes on the phone could save you a chunk of cash – even a few percentage points would help. The above tips will help you get started on the road to debt repayment.
Food prices to remain elevated as suppliers push for more hikes
The cost of food purchased from grocery stores increased 11.4 per cent in January, outpacing the overall inflation rate of 5.9 per cent and up from December's increase of 11 per cent.
Sorry! No free money with RRSPs despite what you've been told
Is an RRSP really as good s a TFSA or are we being deceived? Check out the video of our webinar on TFSAs, RRSPs and taxes for a primer on the basics and then dive into this article for an in-depth analysis.
How the pandemic changed the rules of personal finance
What financial planning lessons were pushed to the forefront by the pandemic and how will "living more for the moment" affect our retirement planning going forward?
Selling a home? Principal residence rules you need to know!
Selling a property can trigger 50% capital gains tax, so you need to be careful and know the rules or the CRA could come knocking!
Students learning financial life skills
In case you didn't know, much of what we do focuses on schools and ensuring kids graduate with some degree of personal finance savvy for the next stage in their life. Don't worry if your school isn't on our program, we are planning some free webinars for you and your kids coming up in the spring — stay tuned to this newsletter!