5 Steps for Dealing with Credit Card Debt

It's true that Canadians compare well in terms of credit card performance when compared to the U.S. and the U.K. And improvements are being made. According to Moody's Investors Services, Canada's charge off index dropped in the first quarter of 2011. Additionally, the year over year rate for delinquency is down. It appears that Canadians are prepared to pay their credit card obligations.

If you are one of the Canadians looking for ways to pay down your credit card debt, meeting your obligations, there are some things you can do to make the process a little easier. Here are 5 steps for dealing with credit card debt:

1. Stop Adding to Your Debt

The first thing you need to do is stop adding to your debt. Before you can make inroads with your credit card debt, you have to quit purchasing items on credit. Take an honest look at your spending, and identify the items that you don't need. Quit buying those items, and actively work toward living within your means.

2. Make Extra Room in Your Budget

Next, you need to make extra room in your monthly budget. Now that you are no longer adding to your debt, it's time to look for extra money. Look for items that you can cut back on in order to save money. There are money saving strategies, including using less energy, canceling subscriptions, and using coupons to plan meals. Some experts estimate that the average household wastes between 10% and 15% of its income each month. Look for these money wasters and put a stop to it.

3. Consider Earning More Money

While you are plugging money leaks, you can also consider different ways to make more money. You can get a part-time job, pick up some extra shifts or start a home business. It's also possible to do odd jobs, and find other ways to make money. Use your creativity to find new ways to earn more, and that can help you get out of credit card debt faster.

4. Make a Plan for Paying Down Your Credit Cards

Now that you have freed up money in your budget by plugging leaks, and now that you have, perhaps, decided to earn a little more money to speed up the process, you can make your plan for paying down debt. A plan for credit card management is important if you want to get out of debt as fast as possible. You can use Dave Ramsey's debt snowball method, or you can put together another plan. Personally, I think it's wisest to pay off the highest interest credit card first. Your plan should focus on paying off one credit card at a time, while maintaining the minimum payment on the others. This will help you concentrate your efforts more effectively.

5. Don't Close Your Credit Card Accounts Yet

As you pay down your credit card debt, remember that now is not the time to close down your credit card accounts. Closing your accounts can hurt your credit score by impacting the length of your credit history, as well as creating a negative situation with your credit utilization. Instead, put the card in a safe place where you won't use it while you tackle your other debts. You can decide which Canadian credit card to cancel later.

With the right plan, you can get rid of credit card debt -- and do it faster than you might imagine.

Image source: sxc.hu

This post was included in Canadian Finance Carnival #40 at the Canadian Finance Blog, and in the Carnival of Wealth #42 at Personal Dividends.