Everything You Need to Know About Credit Card Debt

Credit card Debt affects millions of Canadians, especially this year with the COVID crisis. Many are finding themselves out of work for months on end, unable to pay for their usual lifestyle. The longer the economy suffers, the more people are affected financially. Being unable to get out of the cycle of credit card debt is a problem that millions across the country are dealing with – you’re not alone.

But there are things you can do to help yourself get out of debt. First, by understanding what credit debt is and how it really affects you. Second, by getting out of that cycle of debt and remaining debt free. Read on to find out everything you need to know about credit card debt.

What is Credit Card Debt?

Credit card debt refers to balances on your credit cards that you can’t afford to pay back by the due date. If you’re carrying your balance over from one month to the next, it’s safe to say you’re in the cycle of credit card debt. The cycle can be tough to get out of because compounded interest fees can make your once small debt unmanageable in a very short time.

Credit card debt is the worst debt to have. Not only does it grow at an exponential rate, but it’s an unsecured debt that can wreak havoc on your credit score. Unpaid credit card debt or regularly unpaid balances will affect your credit rating dramatically. This can make it difficult for you to obtain secured loans like a mortgage, qualify for rental housing, or even secure a new job or promotion. Credit card debt is really the fast track to credit score destruction. The goal should be to minimize your credit card debt as quickly as possible.

What is Considered Heavy Credit Card Debt?

The main thing to keep in mind with credit card debt is how it affects your credit card score. It can damage it in two ways: by carrying over balances, or by using more than 80% of your total limit. Even if you only have a $1,000 limit and don’t consider yourself to be in debt. Using up the limit every month is not great for your score.

Another factor that can affect your credit score is asking for a higher limit too often. So heavy credit card debt isn’t really a specific number. It’s dependent on what your card limit is, how much of your balance you carry over and how often, and whether or not you can actually afford to pay that debt back. If you are unable to pay even your minimum balances every month, then your debt load is far too high for you.

How Much Debt Should You Carry?

The total amount of debt – not just credit card debt – you carry is always going to be relative to how much you earn. You should not owe more than you can reasonably afford to pay back. If you find yourself in a cycle of debt that will be tough to escape from. The best thing you can do to protect yourself from this is to plan a budget for yourself and calculate what you can afford to pay back before you get saddled with debt.

The next thing you want to consider is the type of debt you’re incurring. Secured debts, like a mortgage, will not negatively impact your credit score and they are often essential debts. Unsecured debts, like credit card debt, do negatively impact your credit score and they can incur more debt as time goes on because they grow at an exponential rate.

How Much Credit Card Debt Does the Average Person Have?

The average Canadian owes over $8,500 on their credit cards. For some Canadians, this can easily be paid back. For others, not so much. This is why it is crucial to evaluate your personal finances individually, and not focus on the average Canadian. Everyone has their own financial situation and life plans. They may vary from yours. Your focus should be on minimizing your credit card debt before it becomes uncontrollable.

Credit card debt interest rates are very high and your debt can quickly snowball into two or three times the original amount. This can make it nearly impossible to pay back. When evaluating your borrowing capacity, look at your life: your finances, your income, your expenses – not everyone else’s.

What Happens if I Don’t Pay My Credit Card Debt?

If you don’t pay your credit card debt at all, you will find yourself in a very difficult situation. Your credit card company will likely cut of your access to your card – but that doesn’t mean your debt disappears. You still owe the funds; you just can’t incur more debt. Your credit score will hit rock bottom and you will find yourself unable to secure loans from traditional banking institutions.

At BHM Financial, we offer bad credit loans, but we highly recommend coming to see us before you let your unpaid credit debt affect your credit score. You will need a credit score for other things, like getting a better paying job or securing a home or rental. You should always pay at least the minimum to keep your credit score in relatively good standing. If you can’t pay the minimum balance, it’s time to seek financial help and advice from our expert staff.

Will Credit Card Companies Settle?

A settlement is when a lender agrees to reduce the debt to allow the individual to actually pay some of their debt back as opposed to none. If you owe more than you can afford, you can ask lenders to settle your debts. However, it’s important to understand that credit card companies are particularly unlikely to settle their debts with you. It is highly unusual for them to agree to these terms.

If by some chance you were to fall upon a more open-minded person at your credit card company who is willing to settle your debt – don’t get overly excited. On the off chance your credit card companies agrees to settle, it will come at a cost. Your credit score will be negatively impacted by a debt settlement. It is best to try and pay off the debt through a personal loan instead. This way you can consolidate your payments and make it simpler and more affordable for you to manage your debt with minimal damage to your credit score. Plus, paying back your personal loan on time will help rebuild your credit at the same time.

How Can I Get Out of Debt if I Live Paycheque to Paycheque?

It’s true that having limited funds can make it more difficult to pay down debt. However, your debts should be relative to what you earn. If that’s the case, you can pay off your debt by managing it better. This could mean taking control of your financial future by meeting with a debt consolidation expert. They can help you consolidate your debts, reduce your minimum payments, and work with you to develop a repayment plan that you can actually afford.

Debt management is equally as important as paying off your debt. Being able to successfully pay it off without accumulating too much more is very important. With the right financial plan, you can possibly pay off way more than you think, even with your limited funds. Meeting with a financial expert can help you figure out where to save more, how to pay down your debts, and how to prevent incurring more debt.

What Do You Do If You Have Too Much Credit Card Debt?

If you have too much credit card debt, you will need to evaluate your options. Start by meeting with a financial expert at BHM Financial to find out what options you have available to help you get out of debt. Here are some of our top suggestions, that our experts can explain in more detail when you book a consultation:

• Debt Consolidation: A consolidation loan can be used to consolidate your credit card debt. Instead of paying the minimum on several cards each month, pay off all of your credit cards and then simply repay your one loan. This means you only have one payment to make each month and the minimum will likely be less that wat you were paying on all of your cards combined. You’ll also be reducing your interest accumulation, which can get out of hand with a credit card fast.
• Home Equity Loan: If you have a lot of credit card debt, you can take out a home equity loan against your property. This will turn your unsecured debt into a secured debt. You will be able to pay it back comfortably and it won’t damage your credit score.
• Personal Loans: A bad credit personal loan can help you pay off all of your credit card debt as well as other unsecured debts. Much like a consolidation loan, this will help you take control of your debt and minimize the amount you need to payback each month.

How do I Get Out of Credit Card Debt?

Credit card debt is very trick debt. It grows quickly and the soaring interest rates are designed to keep you in that cycle of debt as long as possible. If you are managing to pay the minimums, you may think you’re alright. But paying the minimum only means you will be paying that debt for years, possibly decades. As mandated by the Canadian government, the back of your credit card statement provides a date as to when you would finish your payments if you continue to only pay the minimum. It can be shocking to see how long a small debt can take to repay this way.

Instead, we highly recommend meeting with a financial expert to find out how you can get rid of your credit card debt. When debt becomes unmanageable, it can mean you won’t be able to pay and your credit will suffer. To minimize these negative effects, you can consolidate your bills and develop a repayment plan that is customized to your needs. The minimum payment has to be affordable for you. Otherwise, you will just end up back in debt again and the cycle will go on and on.

If you’ve hit hard times – as so many people around the world have right now – you can’t realistically expect to crawl out of unsurmountable debt without any help. It will end up taking longer, damaging your credit further, and actually costing you more in the long run.

How Do I Get Out of Debt with Bad Credit and No Money?

Excessive credit card debt is definitely damaging to your credit score. This can mean that traditional banking institutions will most likely reject your request for a loan. If your debt is simply more than you can afford to pay back, then banks will not accept your application for secured loans or personal loans – or even a business loan!

If you find yourself in this unfortunate situation, you can contact BHM Financial. We offer bad credit personal loans to help Canadians get back on their feet. That means we will never use your credit score to determine whether or not we give you a loan. Unlike many other lenders, we don’t work with any third parties. We offer our customers the loans directly. Without a middleman, we are able to approve your loans almost instantly and get the cash in your hands within a single business day.

We don’t need a credit check and can offer you a loan once you’ve filled out our application form online. If you can’t secure a loan because of your poor credit history, we can definitely help you get the loan you need to stop the cycle of debt today!

How Do I Stay Out of Credit Card Debt in the Future?

Getting out of credit card debt is only half the battle. If you don’t adjust your spending habits or change your savings tactics, you are very likely to end up in debt again. Of course, sometimes unforeseen circumstances can lead to debt for even the most financially savvy people. But there are some things you can do to minimize your risk of falling into debt again.

The first step is to create a budget for yourself. Create a spreadsheet that includes all of your income, expenses, and savings. You can’t leave anything out. This will help you keep track of what is going in and out and will help you build a contingency fund to fall back on in case of an unexpected job loss or health crisis.

The next step is to make sure you follow that budget to a tee. If you find yourself falling off the wagon, your budget may be too aggressive or too restrictive for your lifestyle. You have to find a balance between self-discipline and something that is reasonably doable, as well.

Creating a balanced budget for yourself can be a tough job. If you are struggling to get your budget in order or having trouble sticking to one, meet with a financial expert. Our experts at BHM Financial can help you develop a financial plan to help you pay off your debts and stay out of debt when you’re done.

Why BHM Financial?

BHM Financial has helped thousands of Canadians get access to loans they need, regardless of their credit history. This gives our customers a second chance to get their finances in order. We know debt can happen to anyone and we also know how quickly debt can accumulate. It can be nearly impossible to get a handle on your debt if you can’t control how quickly it grows and how quickly you can pay it off.

That’s why we work with each of our clients to help develop a repayment plan that works for them. The best way to repay your debt is to be able to do so without limiting every other aspect of your life tremendously. We know you need to live while paying your debt. We want to help you get control over your financial future without compromising your entire life.

BHM Financial’s expert team of advisors can also offer you the advice you need to get your debt under control and manage your finances better. Our experts can explain all of our different products to you to help you find the best solution for your individual situation – because it’s never a one-size-fits-all solution.

Do you suffer from overwhelming debt? Are you feeling unsure how you will pay off your debts and manage to keep a decent credit score? It is exhausting  to be rejected for loans because of your past credit history? Contact us today. We can help you find the right solution for paying off your debts and getting one step closer to living a debt free life. Contact us today to book a consultation to see how our financial experts can help you finally regain control over your financial future!

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