Credit Card Debt Help Guide

How to Pay Off Credit Card Debt

According to a recent report from TransUnion Canada, there are 44 million active credit card accounts in Canada. Canadians currently owe credit card companies more than $85 billion. While those numbers are down from this time last year, that’s still a significant amount of debt for consumers to carry during a global financial crisis. But how do you pay credit card debt off effectively when you owe thousands of dollars?
“Paying off credit card debt can be challenging when you have high balances spread out over multiple accounts,” says Jeffrey Schwartz, Executive Director of Consolidated Credit Canada. “So it can be difficult to get ahead with traditional monthly payments, particularly if you are only paying the minimum requirements. As a result, Canadians must often take a different approach to get the debt paid off.”
With that in mind, we’ve created this free guide that can help you understand why credit card debt is so challenging and what you can do to get out of it. If you have questions or need help finding the best way to become debt-free, call (844)-402-3073 to speak with a trained credit counsellor.

Why is credit card debt so difficult to manage?

Credit cards are a “revolving” type of credit. A credit card company extends you a credit line that you can borrow against as needed. Each month, you must make a minimum required payment equal to a small percentage of the current balance you owe.
This creates the first challenge with credit card debt, that the payments can be unpredictable. The more you charge, the more you must pay each month. For most people, credit card debt is easy to manage when the balances are low. When the balances get high, the bills begin to eat away at your income, leaving you less money to save and cover emergencies. You end up in a cycle where you live paycheque-to-paycheque and every emergency expense goes on a credit card.
Credit cards also have high-interest rates compared to other forms of credit. Those high rates mean that a large percentage of each payment you make gets used to cover accrued monthly interest charges. At an average interest rate of 19.99 percent, more than half of every minimum payment you make covers interest.
The result is that it takes a long time to pay a balance down with minimum payments. When a credit card balance is high, it can take years or even decades to pay the balance off. Even if you pay more than the minimum, it can be difficult to get ahead.

Related: Is there a statute of limitations on credit card debt?

How long does it take to pay off a $1,000 balance with minimum payments?

  • Let’s say you owe $1,000 on a credit card with an interest rate of 19 percent. Additionally, the credit card has a minimum payment schedule of three percent, meaning you pay three percent of the balance each month.
  • If you only make minimum payments:
  • It will take over 5 years (61 payments) to pay off the balance in full.
  • The total interest charges would be $547.

Even if you commit to making $100 payments, it will still take eleven months to pay off the balance. As such, you’d pay nearly $100 in interest charges.

Discuss options to get out of credit card debt with a trained credit counsellor

Finding better ways to get out of credit card debt

  • Now that you see how ineffective credit card minimum payments are, let’s discuss more effective ways to pay off your balances. There are several strategies you can use:
  • Set up a debt reduction plan
  • Use debt consolidation
  • Enroll in a debt management plan
  • Settle your debts for less than you owe
  • File bankruptcy
  • But identifying the best solution depends on your total debt, budget, and goals. You want to choose the option that gets you out of debt quickly with the least financial damage possible. Thus, while some options like bankruptcy may be faster, the damage they can cause to your credit and assets are generally best avoided, if possible.
  • If you are in doubt about the best way to pay off credit card debt in your situation, talk to a trained credit counsellor. They can help you understand your situation and your options for relief, so that you can choose the best solution for your needs.

Credit card debt reduction plans

The first strategy to pay off credit card debt more efficiently is to implement a debt reduction plan. You prioritize credit card balances for repayment and use as much cash as possible to pay off each balance quickly.
There are two ways to prioritize your balances for the payoff:

  1. The Avalanche Method prioritizes your debts from highest to lowest interest rate. First, you pay off the highest-interest rate debts. Afterward, you work your way down to the lowest.
  2. The Snowball Method prioritizes your debts from lowest to highest balance. First, you pay off the lowest balances. Then, you work your way up to the highest balances.

With either method, you first review your budget to minimize expenses and free up as much cash flow as possible to pay off debt. You make the minimum payment requirements on all your accounts except the first one you want to eliminate. Then you devote all your extra cash to make the biggest payments possible on the first debt you prioritize to pay off.
Once you pay off the first debt, then you move on to the next. With one bill eliminated, you have more cash available to eliminate the next.

Advantages Disadvantages
You don’t need outside help to do this.It requires a large sum of money to pay down your balances quickly.
You don’t need a new credit card or loan.The total interest charges you pay will be much higher than other solutions.
If everything goes smoothly, it will be good for your credit scoreIf you make new charges, you may see little to no progress.

Credit card debt consolidation

Debt consolidation is a solution where you roll multiple debts into one monthly payment at the lowest interest rate possible. This involves getting new credit to pay off your existing credit. Several financial products allow you to do this:

  1. Balance transfer credit cards
  2. Personal loans
  3. Personal lines of credit (LOCs)
  4. Home equity lines of credit (HELOCs)
    With each of these products, you borrow money at a low-interest rate. Then you use the funds to pay off your existing high-interest rate debts. This leaves only the low-interest credit line or loan to pay off.
Advantages Disadvantages
You only enjoy one monthly payment instead of juggling multiple bills.You need good credit and the right debt-to-income ratio to qualify.
A lower interest rate helps you save money as you pay off debt.You take on new debt.
You can get out of debt faster, even though your monthly payments may be lower.If the interest rate is not sufficiently low, you won’t benefit.
When done correctly, it should boost your credit score.If you make new charges on your credit cards, you can end up with more debt instead of less.

Enroll in a debt management plan

If you cannot get out of debt on your own effectively, then your next step should be to get credit counselling. A trained credit counsellor will evaluate your debts, credit, and budget to help you identify the best debt solution for your needs.
So if you can afford to pay back everything you owe but you’ll need some support, the credit counsellor can help you enroll in a debt management plan. This is a professionally supported debt repayment plan administered by the credit counselling organization. They work with you to find a monthly payment that you can afford. Then they work with your creditors to reduce or eliminate the interest charges applied to your balances.
You make one monthly payment to the credit counselling service that they distribute to your creditors every month as agreed.

Advantages Disadvantages
You pay back everything you owe in 36-60 payments.You need professional help to set up a debt management plan.
It reduces your total credit card payments by up to 30-50 percent.You can’t use your credit cards once they are enrolled in the program.
Your interest rates are reduced or, in most cases, eliminated.Each credit card gets closed as it is paid off.
You can qualify regardless of how low your credit score is or how much you owe.The plan will be reported on your credit for two years after you complete the program.

Settling debt for less than you owe

If you cannot afford to pay off your credit card debt in full or manage minimum required payments, then the next option is to settle your debts for less than you owe. You pay a percentage of what you owe, and the creditor agrees to discharge the remaining balance.
There are two ways to settle your debt:

  1. Set up a Consumer Proposal through a Licensed Insolvency Trustee.
  2. Enroll in a debt settlement program through a for-profit private company.

The recommended method to settle debt is with a Consumer Proposal through a Licensed Insolvency Trustee. The trustee will determine how much of your debt you can reasonably afford to repay. Then they will set up a repayment plan. You make monthly payments to the trustee that they distribute to your creditors. Once you complete the payments, the remaining balances are discharged.
With a debt settlement program, a private company will help you find a monthly payment you can afford. They keep those payments in an account until there is enough money to make settlement offers to your creditors. They offer your creditors a percentage of what you owe and if the creditor agrees, the money is paid out. Then the creditor discharges the remaining balance.

Advantages Disadvantages
You get out of debt for a percentage of what you owe.This will cause significant damage to your credit. Naturally, a consumer proposal stays on your credit for three years following discharge, while privately settled debts remain for six years after discharge.
You can be debt-free in 24-60 payments.Both options are expensive, so while you save money with the settlement, expect high fees to get it.
A Consumer Proposal is legally binding so it becomes part of a permanent public record.
With a debt settlement company, creditors are under no obligation to accept a settlement offer and you may get sued in the process.

File bankruptcy

Bankruptcy is the solution you use when you owe so much that you cannot pay back even a portion of what you owe. First of all, you meet with a Licensed Insolvency Trustee, who will evaluate your liabilities (debts), assets, income, and expenses. If they determine you are insolvent, then they will recommend bankruptcy.
With bankruptcy, any assets you have that do not qualify for exemption must be surrendered to the Licensed Insolvency Trustee. Afterward, those assets are sold, and the proceeds get distributed to your creditors to pay back a portion of what you owe. Then the remaining balances are discharged.

Advantages Disadvantages
You can be debt-free in as few as nine months if it is your first time filing.The bankruptcy filing will become part of a permanent public record so others can look it up.
A first bankruptcy is noted on your credit report for six years.
You may lose assets that you’ve gained over the years if they don’t qualify for an exemption

Talk to a trained credit counsellor to find the best way out of debt in your financial situation.

Managing credit card debt day-to-day

Once you’ve gotten credit card debt under control, you need to develop healthier credit habits moving forward. Credit cards can be an effective financial tool when used correctly. These tips can help you avoid financial difficulties.

Tips for getting the right credit cards for your needs

  • Most Canadians don’t need to have dozens of credit cards in their wallet. Of course, having several increases the likelihood that you will face challenges with debt.
  • As such, you must only get new credit cards when you have a clear need and the means to manage the debt.
  • Review your budget carefully before you apply for a new card to make sure you can afford the monthly payments.
  • Always try to maximize your score before you apply for a new credit card.
  • If you have balances on your current cards, try to pay them off before you apply.
  • Only get a balance transfer credit card if you can afford to pay off the consolidated balance in full during the 0% APR period when you first open the card.

Managing credit card bills effectively

These tips will help ensure that you can manage credit card debt efficiently within your budget to avoid issues.

  • Always aim to pay off your balances in full every month – never charge more than you can afford to repay.
  • If you pay a credit card balance off in full before the grace period ends, interest charges never apply to the balance. You can check your credit card agreement to find the grace period.
  • Credit card minimum payments should never use up more than ten percent of your net income (the income you take home). If you start to use more, you need to stop charging and focus on debt repayment using the methods described above.
  • • Check in with your credit card companies periodically to see if you qualify to reduce the interest rate applied to your balance. Even if they are not willing to reduce your rate permanently, there may be a promotional rate that you can enjoy for a set time.
  • Always read your credit card statements carefully. They may contain information about your interest rates and changes to your rates or credit limit.
  • Don’t use credit cards as a substitute for income. If you can’t cover daily expenses with cash, you need to revisit your budget and make some decisions on how to balance your expenses with your income.
  • Never be satisfied with just making the minimum payments on your credit cards. Always try to pay more to eliminate balances as quickly as possible.
  • Only use rewards credit cards for balances you can pay off in full within the first billing cycle. Otherwise, interest charges will quickly offset the rewards that you earn.

Credit card debt and your credit score

Credit cards often play a significant role in determining your credit score. So using credit cards properly can help you achieve and maintain a high score. When you have challenges with credit cards, your score will often reflect it.

Always make your payments on time


Credit history is the single most important factor when it comes to your credit score. Making all your payments on time is great for your score while missing a payment by more than 30 days can damage your score by up to 100 points in some cases.

Credit utilization

The second most important credit score factor is credit utilization. This measures the amount of credit you currently have in use versus your total available credit limit. This factor is all about credit cards and other revolving lines of credit (LOCs) that you have.

You never want to use more than 30 percent of your available credit. Let’s say you have three credit cards, each with a limit of $1,000. Your total available credit is $3,000. You do not want to use more than $1,000 of that available credit. You also want to use the balance available on each card below 30 percent, so you want to keep each balance below $300.
If you use more than 30 percent of your available credit, then you will start to see your credit score decrease. Your score can decrease quickly as your balances increase.


Keep old accounts open

A minor credit scoring factor is known as “credit age.” This measures the number of accounts you have and the average age of those accounts. Someone with older accounts shows they have experience managing debt over time. That results in a higher credit score.

For this reason, you want to keep old credit card accounts that are in good standing open and active. Find a small use for an old credit card, so you can use it periodically. This will help you avoid a credit card company closing your account due to inactivity.

How credit card debt relief affects your credit


If you can’t eliminate debt on your own, then you can expect your credit to take a hit as you get out of debt. Any debt solution that repays what you owe on an adjusted schedule will result in at least some credit damage. Solutions that don’t repay everything you owe will damage your credit more.
The more drastic a solution, the worse you can expect the credit damage to be. However, these types of solutions can give you the clean break that you need from debt. Then once your debt is gone, you can begin rebuilding.

Remember, nothing in credit lasts forever. Even the credit score damage caused by bankruptcy and debt settlement will drop off your credit report in six years. What’s more, even before the penalties expire, you can begin rebuilding your credit.

The important thing is to get out of debt first, then you can focus on improving your score.

Credit card debt FAQ


Here is a helpful guide with answers to the most common questions we receive about credit card debt. If you don’t see the question you have or you would like more information, please call us at (844)-402-3073.

No. Some people think that you need to have a credit card and carry a balance from month to month to maintain a good score. Not so.
With credit utilization, a lower credit card balance is always better for your score. Thus, paying off balances in full every month means you maintain a low utilization ratio. It’s the best thing you can do for your score.

What’s more, you can have a good credit score even if you have no credit cards. If you choose to stay away from these high-interest rate debts, you can still use installment loans and other revolving credit lines successfully. If you do, then you can have a high score even if you don’t have a single credit card.

This depends on you, your budget, and your financial management style. You should only have as many credit cards as you can afford to manage effectively and repay.
For most people, two or three credit cards is a good number that you have. You can have one low-interest rate card for large purchases and emergencies. Then you have one or two reward credit cards that you use for specific purchases. Charges on these cards should be paid off in full every month.

There are a few ways to evaluate credit card debt to make sure it’s in line with your income and budget. First, check to see how much income it takes to cover your total minimum payment requirements for your credit cards. This total should never exceed 10 percent of your income.

Another way to evaluate your debt load is to check your debt-to-income ratio. This measures your total monthly debt payments versus your total monthly income. This is the same ratio that lenders check when you apply for new credit to make sure you can afford the debt.

In general, you want to keep your debt-to-income ratio below 36 percent. This gives you ample income to cover your debt payment and other expenses. It also allows you to comfortably borrow money. You are less likely to face rejected credit applications because you have too much debt

The final way to see if you have too much debt is to check your credit utilization ratio. You never want to use more than 30 percent of your total available credit limit. You also want to keep balances below the 30 percent mark for each credit card account that you have.

Many retailers offer credit cards that have specific rewards programs for shopping in their stores. These cards offer a few advantages. You can get rewards for making purchases at that retailer using their card. These cards are also often easier to get approved for, so you can get a credit card even if you have a low credit score or no credit history.

However, those benefits are balanced out by higher interest rates and stricter terms for the account. In many cases, high rates and restrictive terms aren’t worth the rewards that you earn in-store. This is especially true if you don’t pay the balance off in full every month.

Be very careful when considering a store credit card. Read the terms of the credit card agreement carefully before you sign up. Make sure you understand the fees, how interest charges apply and what rates you will pay, and terms that may limit how beneficial the card is, such as deferred interest.

It can be difficult to qualify for general-purpose credit cards and reward credit cards if you have a poor credit score or no credit history because you are new to using credit in Canada.

In this case, you may want to consider a secured credit card. This is a card that you open with a small cash deposit. You can qualify even with bad credit or no credit because the deposit covers the lender if you don’t make your payments.

A secured credit card can be a good way to build credit, so you can improve your score and work up to getting traditional credit cards.

If you do not make the minimum required payment by the billing due date, the credit card company will apply late fees to your account.

If the payment is not made within 30 days, it is considered missed. The credit card company may report the missed payment to the credit bureaus, which can negatively impact your credit score. You will continue to get missed payments on your credit report until you catch up by repaying all the payments you missed.

If you miss the payment by more than 60 days, the credit card company may also apply penalty interest. This is a higher interest rate than the rate you normally pay for purchases. This penalty rate means it will be much harder to pay off your balance and accrued interest charges will mount quickly.

After about six to nine months of nonpayment, the creditor will charge off your account. This means they effectively consider the account a loss because you have not paid. The account will be frozen, so you will not be able to make any new charges.

The account may also be sold to a third-party debt collector. Also, the creditor or the collector that purchases the charged-off account has a right to sue you. If they win, the judgment may result in wage garnishment or property liens.

Don’t let credit card debt get out of control. Talk to a trained credit counsellor to understand options for relief.

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