After the holidays we often have a balance on our credit cards. These tips will help you pay them off as quickly as possible.
The holidays are often a time of excessive spending. Because even if we have made good intentions, it is very difficult to resist offers from retailers in these hectic times.
If you find yourself in debt by making your credit card payments for purchases, you must try to pay them off as quickly as possible, otherwise you may end up having to pay them twice!
63% more expensive!
Pierre Fortin, licensed insolvency practitioner and president of Jean Fortin & Associés, gives the example of a balance of $2,000 on a credit card. “If you only pay the minimum 4% every month, it will take you eight years to pay off your debt. It will also cost you $1,260 in interest costs, which is a payment of 63% more,” he explains. Numbers that make you think…
On the other hand, if you repay $80 per month, it will take you three times less time (32 months) to pay off your debt, while also incurring half as much interest costs ($600).
Pay lump sums
For this reason, you should put paying off your credit card debt as high on your priority list as possible. “The slightest additional effort on top of the minimum payment can have a significant impact on the term and interest costs,” says Pierre Fortin.
Yes, but where will this money come from? As tax filing season approaches, you may receive a tax refund. Dedicate this to paying off your balance. Will you receive a performance bonus from your employer in recognition of your efforts in 2023? In turn, use it to pay off your cards.
“If you pay an additional $500 lump sum on top of the $80 per month with a balance of $2,000, you have just subtracted 22 months from the repayment term and halved the interest, so $300.” , explains Pierre Fortin.
Free up cash
It's equally important to take a close look at your budget to free up cash and use it towards your card balance. At the level of variable expenses (groceries, excursions, restaurants, subscriptions, etc.) it will be possible to turn the screw. “A good exercise is to print out your bank statement for May and October of last year and then add up what you spent on what. This helps to raise awareness,” recommends Pierre Fortin.
With this information, you will have a clear picture of where your money is going. Lunch or takeaway meals, coffee, convenience store purchases, SAQ, restaurants, electronic devices, cell phone charges, subscriptions to multiple streaming platforms, etc. are some of the expenses you should consider and reduce if necessary. You can get back tens of dollars that you can use to pay off your balance.
60 days without a credit card
Of course, these tips only work if you stop using your credit cards. Without it, balances will continue to grow, interest charges will continue to pile up, and you will never see the end of your debt.
“In February there is the 28-day challenge without alcohol, I recommend the 60-day challenge without a credit card!” starts Pierre Fortin. When you go shopping, leave your cards at home and remove them from your payment app on your phone. So you won't be tempted to use them.
Once you've paid everything off, you can treat yourself again without overdoing it.
ADVICE:
· Create a repayment plan. Ideally, we first pay off the debts that cost the most interest. To encourage yourself with a few small wins, cancel the cards with the lowest balances first.
· By reducing discretionary and unnecessary spending, we realize that it is possible to save money without having to make too many sacrifices.
· You should not have more than two credit cards. Do you have more? Contact the issuer to close your account. Attention: It is not enough to cut it up and throw it in the trash, you must make a specific request.