Pollard & Associates Inc. (www.pollardandassociates.ca), an insolvency and financial restructuring firm operating out of the GTA, offers various debt solutions for corporate and personal circumstances. Angela Pollard, President of Pollard & Associates Inc., weighs in on credit card debt and six simple steps to get out of it, an article written by Erica Alini. (Source: Global News, written by Erica Alini, “6 simple steps to get out of credit card debt,” January 24, 2018; https://globalnews.ca/news/3984078/credit-card-debt-help-canada/.)
For those who have experienced debt or are currently experiencing debt, you understand how difficult it is to navigate your way through the process of eliminating debt. One main culprit, which affects many individuals, is debt incurred by credit cards. Credit cards have become ubiquitous in our society. Most people have credit cards and use them regularly because they are a convenient form of payment. While credit cards can be beneficial for many individuals, some people struggle with managing their use of credit cards and the associated payments. In this article, we will discuss methods to manage credit card debt.
Step number one listed by Erica Alini is to cut up your credit cards. Angela adds, “many individuals struggle with credit card debt because it is so easy to spend money with this little piece of plastic. These days, all you have to do is pull out your credit card and tap; most of the time you don’t even keep the receipt. While the convenience is wonderful, it is easier to spend money when you don’t physically see the money leaving your wallet or have to count change. For this reason, removing the source can help you resist the urge to use the plastic offender. Many individuals have found cutting up their credit cards therapeutic and a great way to begin the process of eliminating credit card debt. While it may not be necessary to physically cut your credit cards, if your credit card debt is spiraling out of control, you have to stop incurring more debt. Not using your credit cards can help you cut spending and avoid high interest rates.”
The second step to get out of credit card debt listed by Erica Alini is to free up some cash that you can put towards paying down your credit card debt. To accomplish this, you either need to cut your expenses or increase your income. Angela suggests, “no matter what type of financial circumstance you find yourself in, it is always beneficial to thoroughly understand your finances. Taking note of your fixed and variable expenses can help you pinpoint certain spending areas that can be adjusted. Each month, track all of your expenses and create a realistic budget. You can choose to categorize expenses as fixed vs. variable or discretionary vs. non-discretionary. Rent is an example of a fixed expense and food is an example of a variable expense. Similarly, dining out is discretionary, while prescription medications are non-discretionary. These categories will vary for each household, but by listing your expenses, you can get a good sense of where your money is going and where you can choose to make some cuts. Increasing your income is another way to free up some cash. For some individuals, this may involve asking for a raise. However, that isn’t a realistic option for everyone. Instead, you may be able to turn a skill or hobby into a part-time job or pick up a second job. If you do choose to supplement your income, remember that there are tax implications to earning more money and you will need to ensure that you set enough money aside to pay your taxes. ”
The third step to get out of credit card debt listed by Erica Alini is to make an inventory of your debt. Angela agrees, “as a part of knowing your finances, it is essential to understand your debt thoroughly. As the article highlights, understanding what you owe and the interest rates associated with your debt will allow you to devise a plan to pay it off using the cash you freed up in step two.”
The fourth step to get out of credit card debt listed by Erica Alini is to prioritize. There are two methods mentioned in the article. The first method is the “high interest method” and the second method is the “snowball method.” The high interest method suggests prioritizing the credit card that has the highest interest rate. Once the balance has reached zero, you would then move on to prioritizing the credit card with the second highest interest rate and so on. This method limits the amount of interest that will be accrued. The snowball method suggests paying the smallest amount owing first and then moving on to larger balances. This allows you to gain momentum and motivates you to continue paying off all of your credit cards. With both methods, make sure you continue to make your minimum payment on all of your credit cards. Angela shares, “there are many methods to assist you in paying down credit card debt. The method you choose isn’t as important as the choice to actively reduce your debt. Decide on a method that works for you by taking into account your personality, motivation levels, and financial situation. Create a plan to pay off your credit card debt and adjust as necessary.”
The fifth step to get out of credit card debt listed by Erica Alini is to draw up a debt timeline that suggests a rough idea of how long it will take you to bring each balance to zero. Angela expresses, “a timeline is helpful as it encourages you to look forward to the end goal, which is eliminating your credit card debt. A timeline should not create feelings of anxiety and can be adjusted as necessary. Eliminating debt is a process that requires you to create a plan; a timeline is an effective tool that allows you to achieve it.”
Lastly, the sixth step to get out of credit card debt listed by Erica Alini is to consider a debt management plan or consumer proposal. Angela agrees, “a consumer proposal is an effective approach to credit card debt. If you are unable to pay off your credit card debt on your own or if you also have other debts that have become unmanageable, a consumer proposal may be a good solution for your financial difficulties. A consumer proposal is a legal insolvency proceeding that is administered by a Licensed Insolvency Trustee. A Licensed Insolvency Trustee will assist you through the process and help you understand all the details. As part of a consumer proposal, you are required to attend two mandatory debt counselling sessions. These sessions are run through the Licensed Insolvency Trustee’s office by a registered BIA insolvency counsellor. There is no additional cost for the sessions. Topics covered include budgeting, spending habits, responsible use of credit, and financial goal planning. Therefore, your debt will be addressed with the help of your Licensed Insolvency Trustee and you will learn techniques to better manage your finances in the future.”
Tackling credit card debt on your own is challenging and may not be possible. If your debt has become unmanageable and you are struggling to create a realistic and achievable plan, it may be time to talk to a Licensed Insolvency Trustee about your options. Contact Pollard & Associates Inc. today to discuss potential solutions to your financial difficulties.