Top Tips to Minimize and Manage Your Credit Card Debt

Credit cards are a convenient payment method that can earn you rewards on your purchases. Whether it’s an emergency expense or an indulgence, credit cards are also a great way to pay for anything you cannot afford. Like with most things in life, you should use your credit card in moderation. This is because credit card debt can quickly get unmanageable and even put a strain on your financial affairs. If you find that you’ve been using your credit card a little too often, you’re not alone.

According to the credit reporting agency Equifax Canada, a rising number of Canadians are becoming reliant on credit cards. This is leading to a spike in individual non-mortgage debt. Take Alberta for example, where individual consumer non-mortgage debt is the highest in the country. A recent poll showed that individual consumer debt in the province climbed up to more than $25,000 in just the first three months of 2022. With the current rate of inflation and consequent rise in interest rates, crippling credit card debt is becoming all too common. So, it is important to know just how you can manage your credit card debt.

In the tips below, we’re covering ways you can:

  • prevent your credit card debt from becoming too overwhelming, and
  • manage credit card debt that has already accumulated.

A credit card shouldn’t cause you financial difficulties or excessive worry and mental strain. So, let’s get started!

Tips to minimize credit card debt

You know how they say prevention is better than a cure? Well, it’s true for your physical health and your financial health. When it comes to credit cards, there are certain practices you can put in place to ensure your credit card debt doesn’t get the better of you.

Educate yourself about credit cards

To ensure you don’t end up with steep credit card debt, you should make it a point to understand how credit cards work. For example, find out what the current interest rates are and check the interest rate levied on your card. If it’s much higher than the average rate, you should get a new card with a more suitable interest rate or talk to your bank to reduce your current interest rate. In the same vein, you should also do some research about the basics such as your billing cycle, credit rating, your credit report, the credit-free period, payment policies, late-payment penalties, etc. The more you know, the better equipped you will be able to prevent accumulating unmanageable credit card debt.

Use your credit card responsibly

One way to make sure your credit card expenses remain in check is to only use your credit card for purchases or payments you can afford to pay back. When buying something do a quick mental check - can you afford to pay back this amount within three months? If the answer is yes, go ahead. If the answer is no, you should think again. This kind of check also prevents impulse buying which can easily lead to huge amounts of credit card debt. Plus, it prevents you from having buyer’s remorse which often follows when buying expensive things as the satisfaction you derive from the purchase keeps decreasing over time.

Keep your credit usage below 10-12% of your limit

When you get a credit card, you are granted a certain amount as credit. That amount is your credit limit. You should ideally ensure that your credit usage or ‘credit utilization’ falls within 10-12% of the limit. For example, if your credit limit is $5000, then you should ensure that your debt on your credit card falls below $500-$600. If you find it creeping up above 12%, it’s time to work at paying off the debt to contain your utilization. If your credit usage is anywhere around 30-35% of the limit, then consider yourself to be treading dangerous waters and take the right steps to slash your credit card debt (more on how you can do this below).

Pay your bills on time

Bought something with your credit card. No worries. Missed paying your credit card bill or ended up making a late payment? That should worry you. Paying your bills on time not only ensures that you avoid paying any penalties or fees for late payments (which could be exorbitant), but it also goes a long way in maintaining and even improving your credit score or credit rating.

So, if you want to avoid piling up that credit card debt and a decreasing credit score, make it a point to pay your bills on time. An easy way to do this is to take advantage of automatic payments, usually a free service that will be offered by your bank. With autopay or automatic payments, your credit card bill payments get deducted from your bank account automatically. You can set the frequency and date (make sure you take transfer periods into account as some banks may take longer to transfer funds), and never worry about timely credit card bill payments again. (And yes, before you wonder, we offer autopay at Innovation too!)

Pay more than the minimum amount

It may be tempting to just pay the minimum amount due on your credit card. However, this approach ends up costing you a lot more in the long run than if you had just paid off larger amounts every time. It’s also a guaranteed way to ensure you’ll always be in credit card debt. Why? Credit card interest rates are characteristically high, and the larger your debt, the more interest you pay. If you pay just the minimum amount, you’re paving the way to be charged interest on a larger amount. Pay off as much as you possibly can to avoid paying more money as interest.

Keep track of your billing cycle to enjoy interest-free purchases on your credit card

Most credit cards come with an interest-free period (also referred to as the ‘holiday period’) within which you will not be charged interest on a purchase or payment. Now, if you know how long this period lasts, you can take maximum advantage of it and purchase or pay without incurring interest. However, bear in mind that your holiday period may not start when you make a purchase or payment. Instead, it usually starts from the first day of your monthly billing cycle. If you know when your billing cycle starts you can plan your credit card usage accordingly.

Now while the tips above will definitely help you to prevent falling into a credit card debt spiral, what if you’re already struggling with mounting credit card debt? Depending on the severity of your situation, you should find the tips below helpful:

Tips to manage credit card debt

First things first, take a deep breath and be kind to yourself. We have just emerged from the COVID-19 pandemic, and it has not been an easy time. If you’ve accumulated credit card debt, there are tried and tested ways to rid yourself of that debt too. We’re going beyond making budgets (which you should already be doing) or talking to your credit card company (which you should try if you haven’t already) to bring you some practical ways to manage your credit card debt.

Take stock of your financial position

The first step to achieving a goal is to figure out just how you will achieve it. Consider your income and expenses (including living expenses like rent and utilities, as well as lifestyle expenses such as vacations, shopping sprees, hobbies, and that daily coffee from the local cafe). Take stock of any savings and investments, and finally, make note of all your debt. If you have multiple credit cards, then make sure you’re considering every single credit card you need to repay. You should also make note of the interest rate and penalties for each card. Once you’ve finished analysing your finances, you will have a clear idea of just where you stand and how much debt you have to pay off.

Doing this exercise can have surprising results. For instance, you may find that your debt is not as crippling as you imagined, and by cutting down on a few extravagances, you can manage to pay it off comfortably. Or you may find that you have more debt than initially considered and need to improve your spending habits or explore other options to manage your debt.

Choose your debt-repayment strategy

Once you have an idea of how much debt you have and the income you earn to repay it, you can choose the repayment strategy that works for you. There are three popular methods to choose from:

1 - Pay off your high-interest debt first: If you’ve evaluated your credit cards as explained earlier, you should have an exact idea of which cards charge the highest interest. Pay those off first to save the most money. Continue making monthly payments on other cards of course, but paying down the balance on your high interest cards will reduce those high interest charges.

2 - Start small and accumulate wins: The best thing to do when you feel you have a mountain of debt? Take one step. Then another, and another. Paying off your debt won’t happen overnight, so be gentle with yourself and celebrate repayment milestones. Start by paying off your smallest debts and work your way up towards larger debts. Or start by making small changes to increase your monthly debt payments. Seeing your small victories will help you feel less overwhelmed and more motivated to continue.

3 - Take on better debt: This strategy is the most suitable if you’re in a financial crunch and realize you don’t have the means to pay off your debt even with strict budgeting. You can choose to take out a personal loan (or a debt consolidation loan) that will partially or fully cover your credit card and other debt. You’ll also enjoy paying a much lower interest rate on your loan, saving you money in the long run. If you have many different cards, it also simplifies borrowing, as you only have to worry about the payments for one loan.

Get a balance transfer credit card

Unlike a debt consolidation loan, which you can use to pay off more than just credit card debt, a balance transfer credit card specifically helps you manage your credit card debt. It allows you to transfer all your credit card debt to a new credit card, which will likely have a lowered interest rate. This will allow you to get rid of your high-interest debt.

Ultimately the right strategy for you will depend on your situation. If you’re interested in exploring a debt consolidation loan or a balance transfer credit card, our financial experts will be happy to help you choose the most suitable option. Whichever strategy you opt for, make sure you put it into action, and before you know it, you will have successfully managed your credit card debt. Next step? Use the tips at the start to keep your credit card debt under control.

Whether you’re trying to minimize your credit card debt or manage your existing debt, we hope you found these tips valuable. Contact us today to get more financial advice or even apply for a credit card that won’t burn a hole in your pocket!