credit card debt relief

Credit Card Debt Relief

  • By Daniel Maksymchak, LIT

As a society, we have a love/hate relationship with credit cards in Canada. They can be useful tools if used responsibly, but they can lead to financial turmoil if used in the wrong manner. When that happens, we search for credit card debt relief options.

Advantages of Credit Cards

The main advantage of having a credit card is that it allows us to fully participate in today’s hyper-connected, online world. When they first arrived on the market, credit cards were largely used for transactions that you could use cash for but chose not to.  Someone heading downtown or to the mall in the early days of credit cards would have found the main benefit of shopping with a credit card was that a large sum of cash could be replaced by a single credit card. This would have improved security and convenience, but the same transaction (paying someone in person for goods or services) could have been achieved with cash.

With the rise of the internet and e-commerce, that is no longer the case. Each year, more and more purchases are being made on websites and through mobile apps, where transacting with cash is not possible. As such, credit cards have become important intermediaries that allow for fast payment by a purchaser and secure receipt of the funds by a vendor, regardless of physical distance.

There are businesses that have implemented workarounds to attract customers without credit cards, such as gift cards that you can buy in stores for cash and load into a website or app, but using a credit card is undeniably more convenient.

Several credit cards will offer rewards for using the card. These can come in the form of points per dollar spent that can be redeemed for things like travel, groceries and gift cards, depending on the card. Some cards also offer “cash back”, in that a very small percentage of your total spending is applied to a future credit card statement as a discount.

Another benefit of putting a purchase on a credit card is that the card may offer a form of insurance to protect the goods and/or services paid for with the card.  Examples of types of insurance offered by credit card companies include trip interruption or cancellation insurance, car rental insurance and extended product warranties.

However, these benefits do come with risks that credit card users should be aware of.

Disadvantages of Credit Cards

This convenience comes at a cost. As an intermediary, credit cards make money from their relationships with both you and the stores. Stores are charged a merchant fee, usually a percentage of each transaction, which may contribute to higher prices overall.  For you as a consumer, the potential direct costs of using credit cards come in two forms:

• Credit card fees

Some credit cards will charge you an annual fee for use of the card. Cards that charge an annual fee often offer better benefits such as more robust insurance policies and higher rates of rewards on your spending. Whether paying the annual fee is worthwhile depends on the nature and amount of the spending that you plan to put on the credit card.

• Interest rates

Credit card interest rates vary between cards, but it is an expensive form of debt. Once a purchase is charged to a card, there is a period of time before a bill is generated, usually monthly, and then a few weeks after that the bill will become due. If the bill is paid in full before the due date, there is usually no interest to be paid.

However, if you pay anything less than the full balance, including the “minimum payment” as outlined on the bill, interest will accrue. This interest will be charged at a rate that can exceed 25%. You can see how credit card companies can quickly make money from you charging purchases to the card that you are unable to pay off in full.

Beyond these direct costs, there are also risks from simply having access to readily available debt in the form of a credit card. Problems sometimes start when you charge a purchase to a card that you would not have made had you not had access to the credit card. If using the card wasn’t so “easy”, the temptation to make the purchase may have been avoided, along with the interest that accrues while you are trying to pay it off.

It is important to remember not to make any purchases on a credit card that you would not have made had you not had the card available. Credit cards are best used as a form of payment for something that you have the money to buy, not as a means of financing something that you wouldn’t otherwise have purchased.

As you plan your financial future, make sure that you consider both the advantages and disadvantages of credit cards. Sometimes we get asked “What are the best Canadian credit cards?”, but the answer to this question depends on what sort of spending you do, and what sort of rewards you prefer. The question of the best credit card in Canada is very subjective.

How to Get Out of Credit Card Debt

At LCTaylor, we are Licensed Insolvency Trustees. If you are reading this blog on our website, it is likely that you found us while researching ways to deal with your credit card debt problems.

If you are not able to pay off your credit card in full each month, are having to use one credit card to pay off another, and/or are having to resort to payday loans to make your credit card payments, it would be wise to discuss your situation with a Licensed Insolvency Trustee such as LCTaylor.

With a free, no obligation consultation, you can find out what options exist for credit card debt relief in Canada. Many people believe that being able to make the minimum payments on your credit card(s) means that you are doing fine financially, but they don’t realize that in doing so their payment is normally going almost entirely to interest and very little to the principal, resulting in payments that could go on for decades. The sooner that this is recognized as a sign of financial difficulty, the sooner that help can be sought and a plan can be put together that will eliminate the credit card debt in a reasonable length of time.

In fact, one of the things that we hear most frequently from the people that we assist with credit card debt is that they wish that they contacted us much earlier and saved themselves thousands of dollars in payments. If you are looking to get out of credit card debt, email us at questions@lctaylor.net or call us at 204-925-6400 today.

 

Daniel Maksymchak, LIT

Daniel has worked in the bankruptcy and insolvency field since 2010. He is a graduate of Queen’s University. Daniel began his career in accounting in 2007, and obtained his Chartered Accountant designation in 2009 before transitioning to the insolvency field. In 2014 he attained his license as a L Read More Daniel has worked in the bankruptcy and insolvency field since 2010. He is a graduate of Queen’s University. Daniel began his career in accounting in 2007, and obtained his Chartered Accountant designation in 2009 before transitioning to the insolvency field. In 2014 he attained his license as a Licensed Insolvency Trustee. Daniel is member of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).Daniel has volunteered his time with numerous causes in his community, and enjoys spending his free time exploring with his family. Close

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