Like many Canadians, having credit card debt is a fact of life. Those seemingly small purchases tend to add up over the month and, by the time you know it, you have charged more than you expected. That’s how easy debt can add up. More importantly however, is how you manage and tackle your debt and bring it back down.
Having too much debt will affect your credit report and score. So it is always best that you setup a payment plan that works for you. Generally, to keep your credit score healthy try not to charge to your credit limit. Stay in the 30-40% range – if you have a credit limit of $1000, charge up to a maximum of $400. If you have larger purchases, consider charging on multiple cards. Having the debt spread over a few cards is better that maxing out 1 card while the others are close to zero.
When paying your credit card debt, set up a payment strategy that works. One of the most effective ways to bring down your debts is to target 1 card at a time instead of spreading your payments over all cards. This is done by paying as much as you can on one card, and just paying the minimum on the other credit cards. This method will help you pay down debts faster and will help you see your progress. Spreading your debt payments too thin and you will not make much of an impact on your balance.
While you are paying your credit cards, attack the cards with the higher interest rates first. The higher the interest rate, the more costly it is for you to carry a balance. If you have multiple cards with high interest rates, put your payments towards the lower balance card first, that way you can clear your balance faster and put the money you saved towards the next card. This method is sometimes referred to as a snowballing method.
If your goal is to pay down your debt and improve your credit rating, you need to set a payment schedule that works for you. You need to stick to the plan and stay the course. In a year, you can see the enormous progress and get out of debt faster. But remember, you have to limit your credit card spending, otherwise, your efforts will be ‘effortless’
I’m Pat Drummond, I’ve worked in the finance industry for over 20 years and have helped many Canadians reduce debt and improve their Credit Reports. Does it always seem like debts never go down? Start with a plan and be committed to reducing your debt. How is your debt management battle going?