The average rate of interest charged on credit card debt in Canada is 19%. Some credit cards carry an interest rate as high as 29.9%, and cash advances typically incur an even higher interest rate.

Making minimum payments of $125 a month on a $5,000 credit card at 29.9% interest will take over 19 years to pay off and will result in paying $24,000 in interest.

With the increased cost of living, paying down credit card debt may seem impossible.

woman calculating credit card debt

A comprehensive analysis of your financial situation will lead you to the best solution to pay off your credit card debt.

  1. Make a detailed list of all of your creditors with the balance owing, the interest rate charged and minimum monthly payment. Sort the list by highest interest bearing to lowest interest bearing and add up the total amount owing.
  2. Make a detailed list of your monthly income and living expenses (rent, heat, food, gas, etc.) excluding unsecured debt repayment. Try to decrease discretionary spending (eating out, movies, etc.) and contact cable or internet providers to reduce monthly charges. Determine how much is left at the end of the month to apply towards your debt.
  3. Make a listing of your assets – savings accounts, investments, equity in any real property, etc. It may be an option to use investments that are earning a minimal return to pay down your highest interest-bearing debt.
  4. Contact your credit card lender and see if they can offer a better interest rate.
  5. If you have credit room on a lower interest-bearing account, transfer the balance from a higher interest-bearing card. The less interest you have to pay, the quicker you can pay off the debt.
  6. Contact your financial institution to see if you are eligible for a debt consolidation loan. This loan will likely be at a significantly lower interest rate and result in one monthly payment as opposed to several payments to various creditors.
  7. Make minimum payments on all credit cards but put any excess funds on your highest interest-bearing cards to minimize the interest paid.
  8. Put your credit cards away in a safe place to avoid continued use while trying to pay down the debt.

It may feel like you are living pay cheque to pay cheque while paying down the debt, but it will be satisfying to see your balance owing decrease over time. If you are unable to pay off your debt in a reasonable time period, contact a Licensed Insolvency Trustee for a free initial assessment to discuss a bankruptcy or consumer proposal.

Kathy portraitBy Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member of the Ontario Association of Insolvency and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)