How to quickly pay off your credit cards
Before hanging your head in despair while wondering how you’ll ever repay your credit cards, take some time to review your debt situation and credit card use.
Reflection #1: Say adios to your credit cards!
You need to make a hard choice: pay off your credit cards or continue to use them. The two options are rarely compatible when your debt level is soaring.
Stop using your credit cards to pay for living expenses that you struggle to cover month after month.
Take the credit cards out of your wallet. Hand them to a trusted friend for safekeeping until you pay off the balance.
The larger the debt, the tighter the belt needs to get.
Reflection #2: Where are you going to find the money?
Ask yourself the following question: where will the money come from to pay off your credit cards?
Will it come from your annual performance bonus or accumulated overtime? Will you reduce your spending and follow your budget to the letter? Are you prepared to sell some assets to pay off your credit cards?
Unless you magically discover that money grows on trees, you’ll have to do this exercise to set a realistic and reliable payment schedule.
Reflection #3: Why are you doing this?
Answering this question helps you stay the course and provides motivation to quickly repay the balance of your credit cards.
There is no room for complacency as the temptation will be great to fall back into your old ways.
Instead of focusing on the negative, consider how beneficial it will be to have a credit card with a balance no longer spiralling out of control.
Strategies to succeed
You want to get out of debt, but where do you start?
The highest interest rate
According to the Institut québécois de planification financière, it’s better to focus on the credit card with the highest interest rate, regardless of the outstanding balance.
You will break the vicious circle of compound interest applied to your outstanding balance. As time goes by, you’ll stop paying interest and pay off the balance.
Choose your option
Use the Credit Card Payment Calculator offered by the Government of Canada.
The lowest balance
The Financial Consumer Agency of Canada recommends you create an inventory of your debt, starting with the lowest balance to the highest.
Start by paying off your credit card with the lowest balance until all your credit cards are out of the red.
If this strategy to become debt-free does not seem aggressive enough, it does have the advantage of letting you gradually get used to paying off your credit cards, and it will motivate you to keep moving toward your objectives.
The highest balance
This strategy is the polar opposite of the method where you pay off your debt with the lowest balance first.
After doing an inventory of your credit card debt, from highest to lowest balance, you start by paying off the highest balance and move on to the card with the lowest balance.
An agreement with your creditors
Try to establish an agreement with credit card companies to whom you owe money to:
- Lower the interest rate
- Extend the duration of payments to reduce your monthly payment amount
- Consolidate your debts into one loan, aka debt pooling (if this is possible)
The Office of Consumer Affairs offers advice on how to negotiate this agreement with your creditors.
Cancel your credit cards
Think about cutting up that credit card after paying off the balance.
Only keep cards that you use responsibly and/or offer you a lower interest rate.
And if that doesn’t work?
Debt consolidation may be the next step.
One thing is certain, don’t hesitate to ask your advisor for help. They can support you in your efforts and assist you in reaching your financial goals.
Note : This blog post is provided for information purposes only. It is not a substitute for professional legal, financial or fiscal advice. For advice specific to your personal situation, always speak with your advisor. SSQ Insurance cannot be held responsible for any decision made as a result of reading this blog post.