Do you have sleepless nights on your credit card balance?
Do you only make minimum payments until “extra” money comes your way?
Is your card limit just not enough to meet your costs and is it already maxed out?
If you answered yes or even maybe to any of these questions, you probably can’t pay your credit card debt.
It’ll be OK. Read on for my top tips on how to crush debt when you really can’t afford it.
Deal with it, don’t dwell on it
There’s little point in blaming yourself for the financial mistakes you’ve made in the past. We made them all. Acknowledge that you have a debt problem, then move on. It is time to act to resolve the situation. Once you start making progress on the balances, you will find that your behaviors and the way you think about money will begin to change in a positive way. You’ll even start to question your values, the relationships in your life, and how you spend money within your budget (and yes, you have to have a budget!). This is a good thing; a time for reflection.
Consolidate at a lower interest rate
Your first cash move is to see if you can consolidate all credit card balances into a lower rate loan or line of credit. This will reduce the interest charges you pay each month, meaning more of your payments will go towards the principal balance rather than interest. Consolidation loans can be hard to get, so if you’re turned down on your first application, don’t worry. Take the next six months to progress on the balances and then try to consolidate again. Don’t keep applying though; this will have a negative impact on your credit score.
Some people look to family members for help consolidating their debt balances. This can be a good option, but be clear with the person helping you about the terms attached to it and draw up a contract. I once mediated between a father and his son over a family loan of this nature, and it completely tore their relationship apart.
Pay extra on the highest interest balance
Several sales? Start paying a little more each week on the highest balance. This may mean forgoing takeout in order to apply an additional $25 per week to the card costing 21% interest. Just a few more dollars weekly is also called the repayment snowball method. He begins to build significant momentum as the snowball rolls down the hill; in other words, you’re really going to see the balance go down a lot faster after a few weeks. Once the highest balance is paid off, apply this method to the next highest balance and so on. The good news is that the next card will be even faster to pay off because you’ll have money from payments from the previous card, and you’ll also have that extra weekly money to put into it. Repeat this operation until all balances are paid. You’ll start to see your credit score go up in about 90 days.
Sell stuff to pay off balance(s)
Do you have an extra Nintendo? A Sea-Doo? A snow blower? Designer bags? It’s time to put it all up for sale online (Kijiji, Facebook Marketplace, eBay, etc.). If you went overboard when buying your car or signed a lease for a place you really can’t afford, you may also need to downsize those larger items. Put all the proceeds on your highest interest balance.
Listen, I know this option may sound unpleasant to you, but take comfort in knowing that financial peace of mind will be better than any of those short-term sacrifices you will make; the positive psychology of money proves this to be true.
Earn more money
If you have the ability to work extra shifts, work a few extra billable hours, have a side hustle, now is the time. If you need a raise, promotion, or job change, go for it. Any extra money you may earn, including tax refunds and bonuses, is all spent on your debt. And if someone owes you money, now is the time to call that loan and assign it to your credit cards.
If you just can’t keep up
If you’ve tried all of these options and put serious effort into them for at least 90 days and still can’t meet your payment obligations, you may need to start working with a Licensed Insolvency Trustee, who can help you prepare a consumer proposal. This is a process where an agreement is made between different lenders that you owe them something, but often not everything, and at a lower rate. The downside of this strategy is that your credit score will be negatively affected. however, it is not as severe an impact as declaring bankruptcy, which should be a last resort.
Changing your money history and paying off your credit card debt takes time and hard work, so don’t give up. If you need help, contact a financial advisor to help you budget and adopt better financial behaviors. You have this!
And, whatever you do, don’t take on more debt when you pay off existing debt; it will only perpetuate the cycle.
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