If you’re carrying credit card debt, know that you aren’t alone. Many Canadians struggle with credit card balances and interest rates well above 20%. There’s good news! Credit card debt relief is possible for you with a clear plan. It won’t be easy, but having a clear plan to follow and partnering that with building new money management habits will make it a little bit easier.
Understanding your debt situation
Before jumping into any debt repayment strategy, it’s important to know where you are. Grab all your credit card bills and list all of your credit card balances, interest rates, credit limits, and minimum payments. While it might be tempting to stay in the dark about how much you owe, don’t. Add all the bills up. You can’t fix what you don’t measure. Knowing your starting numbers will help you track your progress.
While checking your numbers, it’s also a good idea to see if any of the credit card companies you have cards with offer balance transfer options with lower rates. Any opportunities to lower the interest rate can help shorten your debt payoff timeline. If you don’t see any offers available, it’s also a good idea to call to see if they are able to lower your interest rate. It could be a no, but if it’s a yes, it can save you hundreds, or even thousands.
DIY debt-relief strategies
Below are descriptions of the most common and effective DIY credit card debt relief strategies. Read through to see if one or more would fit your needs. It’s important to note that all of these strategies involve making the minimum monthly payment on all credit cards except one. That one gets every extra dollar. Once paid off, the money that went towards making payments on the card that was just paid off is applied to the next card. The difference is how you choose which debt to focus on.
The debt snowball strategy
The debt snowball focuses on your smallest balance first, regardless of interest rate.
Pro: Paying off debt is about psychology as much as math. When you pay off a credit card completely, you get a win that can keep you motivated.
Con: If higher interest rate debts are on cards with bigger balances, you’ll pay more interest overall.
If you have balances of $500, $2,000, and $5,000, focus on the $500 balance first. When you pay off the first one, your payments grow as you eliminate each debt!
The debt avalanche method
The debt avalanche focuses on paying off debt with the highest interest rate first.
Pro: Eliminating the most expensive debt first minimizes what you pay in interest.
Con: If your highest interest debt has a larger balance, it takes longer to get your first win.
The emotional method
The emotional method means paying off debt based on what causes the most stress. These can be cards used during tough times or purchases you regret.
Pro: Paying off emotionally weighted debt can feel like more than just the weight of the debt lifting.
Con: The debt that bothers you most might not have the highest interest rate or smallest balance, so it could lead to paying more in interest and a longer timeline before you get your first win.
The debt snowflake approach
The debt snowflake strategy partners well with any of the other debt payoff strategies. It uses small, extra payments whenever you find extra money. They can add up fast and be super motivating!
Sold something online? That’s a snowflake. Negotiated a lower bill? Snowflake. Saved $20 on groceries? Another snowflake.
Apply these payments immediately to your debt. This ensures the payment gets made and reduces interest since credit card interest is calculated daily.
Combining strategies
You don’t have to pick just one method. Many choose a mix of approaches, like using the snowball for one or more cards with small balances, then switching to the avalanche for high-interest cards.
The best debt management plan is the one you’ll stick with.
When DIY isn’t enough
Sometimes, credit card debt becomes too much to handle alone. If you’re struggling with minimum payments or debt collectors are calling, you have options. For example;
- Credit counselling services connect you with a counsellor who’s an expert in all the various debt relief methods available. After gathering all the relevant financial data from you, they will make an informed recommendation as to what debt management method is best for your situation.
- A licensed insolvency trustee can explain consumer proposals or debt settlement options that reduce what you owe.
- A consolidation loan combines multiple high-interest credit card balances into one lower-interest payment. This works well if you have good credit and qualify for a line of credit or loan.
Pursuing these debt solutions doesn’t mean failure; it means exploring all options.
Things to keep in mind
As you work on credit card debt relief:
- Closing a credit card can hurt your credit score. Keep accounts open but unused to avoid this. However, if keeping it open creates spending temptation, closing it might be best.
- Avoid cash advances, as they come with fees and higher interest rates.
- Don’t ignore card issuers or collection agencies. Communication keeps doors open.
Building better habits
Paying off debt is only part of the battle. Building new habits can help you pay off your debt faster and make it a smoother process.
- Creating a budget and finding the systems and tools to help you implement it into your life are key to long-term financial health.
- Building an emergency fund can help you avoid future debt. Start small and add to it as you are able to.
- Consider whether you need all your credit cards. A large credit card limit across multiple cards can tempt overspending.
- If you have other debt, like a car loan or a line of credit, include those in your debt repayment plan. Tackling unsecured debt first often provides breathing room because of the high interest rates.
Your next step
What matters now is taking action. Whether your bad credit score is holding you back or you’re protecting your good credit, paying off debt strengthens your financial position.
Credit card debt relief isn’t one-size-fits-all! Find what works for you and consider including the snowflake method, as it accelerates any debt payoff program. Even $10 more than the minimum goes much further than most people realize.
Ready to learn more? Understanding the math behind minimum payments shows why small increases make such a big difference. Check out our guide on minimum credit card payments to understand the impact of the minimum payment trap.
