Debt relief remedies for plastic-loving Canadians

Canadians love their plastic.

Pay down debt tips

There are about 37 million debit cards and 72 million credit cards circulating throughout the country. The Credit Counselling Service of Toronto reveals that it's not uncommon for Canadians to carry eight or 10 cards and a debt load of $30,000 or more. And according to the most recent statistics from Equifax Canada, total outstanding credit card debt hit $78 billion in September 2009 -- up from $76 billion in September 2008.

No wonder credit cards are the leading cause of personal bankruptcy in Canada. But mounting credit card debt doesn't have to end in a face-to-face encounter with a bankruptcy trustee. Darren Dickey, president of DebtManagers.ca, a debt management and credit counselling organization, offers these tried-and-true solutions for resolving your credit card debt.

Consider consolidation. One of the most effective ways to reduce credit card debt is to seek out no-interest alternatives. Although "it might make Christmas dinner a little uncomfortable," Dickey recommends applying for an interest-free loan with your parents or close relatives to pay down your debt. If that's not an option, Dickey says a home equity loan could be an excellent way to pay off the balance on your credit cards at a lower interest rate. "A homeowner's line of credit is usually only a couple percentage higher than prime," he says. "So you're paying very low interest on the loan, which enables you to attack the principal." However, experts are divided on tapping into home equity to pay down debt as many homeowners have found themselves owing more than what their homes are worth during a down economy.

Move on over. If you have multiple credit cards, you may want to consider a balance transfer. First, identify the credit card with the most favourable repayment terms and lowest interest rate. "The benefit is that while you still maintain the same total debt, your interest is going to be a lot lower," says Dickey. Just remember: many credit cards charge balance transfer fees so be sure to select one with the lowest penalty possible.

Seek expert advice. "There's an enemy that the consumer faces when it comes to paying off credit card debt: themselves," warns Dickey. "If you carry a credit card balance, you really have to take a look at what you're spending your money on and a lot of times that's convenience of lifestyle and not necessities like food and clothing." Fortunately, a credit counsellor can help you get real about your financial situation and create a realistic credit card relief plan that isn't just "instant noodles and date nights at the library," says Dickey.

Negotiate. Credit card companies aren't in the business of losing money, which is one reason they might be willing to reduce your current debt balance. Of course, your debt negotiation success often "depends on your current status with a credit card company. If you're behind on your bills, and if you haven't made even your minimum payment, then they're much less likely to negotiate," says Dickey. What's more, he adds, a debt settlement "tends to provide short-term relief. Walking into your bank or phoning the 800-number on the back of your credit card will usually only get you a six-month hiatus and a couple of percentage points down." So maintain realistic expectations.

Published November 3, 2010

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