While Canadian interest rates have fallen in the past few years, our per capita household debt has continued to rise. For every one dollar earned, we are spending almost $1.50. As a result, many households are only able to make minimum payments on credit cards on a monthly basis, which drastically increases the amount repaid. Creditors are making a profit and loving it. You may be shocked to know that if you have a $5,000 balance on your credit card and make only the minimum monthly payment (based on 18% interest), it will take you 38 years to pay off the balance! In the end, due to interest, you would have paid $17,674.00! Not junk change.
Unfortunately, most of us are not credit savvy. We don’t ask questions. We don’t read the fine print. We are too trusting. We take for granted that the credit industry is looking out for our best interest when, in fact, their main motivation is profit.
Most of the debtors I meet tell me the same story. It feels good when you get approved for credit. You feel worthy. The creditor has faith in you to repay the debt. Unfortunately, due to unforeseen circumstances the debt often escalates beyond a manageable point and you may feel overwhelmed. It’s never too late to attempt to fix the problem. Think of the Nike slogan: “Just do it”!
#1 Recognize that your debt problem may be a symptom of a greater issue: poor money management, spending beyond your means, assisting others financially, buying to fill a void, keeping up with the “Jones”, supporting addiction issues such as gambling or drugs. These issues must be addressed or you will just put a band-aid on the problem.
#2 Create a plan (or budget) to pay down the debt EACH pay period. If you can afford to do so, ALWAYS pay more than the minimum payment. Paying only the minimum payment does NOT reduce the principal.
#3 Remove the credit card from your wallet. If it’s not there, you can’t use it.
For more information regarding the wise use of credit, visit our Counselling Resources section of this website.
Tags: Minimum payments, Saving interest, Smart use of a credit card