With the month of January coming to a close, it’s the time of something that many of us suffer that I like to call “holiday spending hangover.” By now you’ve probably received your credit card bill for your holiday shopping. Is it more than you expected? You’re not alone. With Canada moving toward a cashless society, it’s becoming increasingly difficult to show spending restraint and avoid impulse purchases (mobile payment sure isn’t helping!).
A 2015 survey by the Abacus Data revealed that 56 percent of Canadians pay their credit card balance off in full every month. For the 44 percent that don’t, credit card debt accounts for five percent of total household debt. With the interest rate on most standard credit cards at 19 percent and retail credit card interest rates even higher at almost 30 percent, it’s costing many of us an arm and a leg to carry balances on our credit cards.
If you’re one of those carrying a balance, debt can become difficult to manage. You can easily get into the debt trap of only paying the minimum payment – the greater of three percent of your balance or $10. Paying the minimum seems so manageable, but debt can quickly pile up. Before you know it, you can end up paying tens of thousands of dollars in interest over your lifetime if you’re constantly carrying a balance.
So how do you rid yourself of your credit card debt? Here are some simple ways.
Direct More Budget to Credit Card Debt
Do you have a household budget? Surveys over the years reveal less than half of Canadians do. A budget shows you exactly where you’re spending your money. By knowing where your money is going, you’re more likely to achieve your financial goals, whether it’s short-time goals like going on a family vacation and paying down credit card debt or long-term goals like homeownership or retirement.
Cut the Cord
Looking to cut back on your spending? Cable is a good place to start. A growing trend in Canada is “cord cutting.” That’s where you cancel your cable and decide to do without. But you don’t want to just stare at a blank TV screen and you don’t have to. There are plenty of cable alternatives, including a high definition antenna and streaming services such as Netflix ($10 a month is a lot cheaper than $150 a month).
Eliminate Recurring Expenses
Look for ways to cut back on recurring expenses. Those are the expenses that you pay every month without giving them a second thought. At least once a year review your recurring services and see where you can cut back. Examples include newspaper, gym memberships and other services that can add up to hundreds or thousands each year.
Be Frugal
Be frugal, not cheap. Being cheap is choosing the lowest cost option. This can end up costing you more in the end if it’s cheap and breaks. Being frugal means getting the biggest bang for your buck. Choosing the option that offers you the best value. Instead of spending money on brand-name products, use the generic alternative. Other ways to save include cutting the morning coffee and cooking more meals at home instead of dining out.
Redeem Your Rewards
The best part of credit cards are of course the rewards. Instead of spending your hard-earned cash at the mall, make your rewards work for you. Redeem them for gift cards or other perks that allow you to save your cash and avoid getting in debt in the first-place. Better yet, avoid all the hoopla of rewards and opt for a plain vanilla cash-back credit card and use the cash you earn from every day spending to pay down your outstanding balance.
Take Advantage of Balance Transfers
If you’re carrying a balance on your credit card that never seems to go away, you might want to consider a balance transfer. A balance transfer is the process of moving credit card debt to another card with a lower interest rate. Take advantage of introductory rates as low as zero percent.
While balance transfers can be great, be sure to avoid their pitfalls. Many credit cards charge you a fee to transfer over your balance. Also, missing just one payment cancels the low intro rate (you can end up paying a higher interest rate than the credit card you transferred the balance from).
The Bottom Line
Debt requires attention – it won’t go away on its own overnight. Take steps to improve your situation. A little effort goes a long way. If you’re carrying a balance on your credit card, aim to pay it off this year and start 2018 debt free.
