Though nobody should aim to be in excessive debt, managing marginal debts helps people to establish credit. Another word for credit in this context is trust. You build trust with creditors by managing any outstanding debts you owe. By building this trust with creditors, you gain access to larger lines of credit. This is how credit is supposed to function in a perfect world.
However, circumstances arise that quickly dispel the myth of a perfect financial world. Maybe you get rear-ended and need to shell out $1,000 for repairs. Or, perhaps, you fall and break your wrist. There will always be emergencies and hidden expenses. Sometimes these hidden expenses compound. You can use credit cards to cover these expenses, but it soon becomes a slippery slope of ever-mounting debt that becomes harder and harder to navigate.
You Need A Separate Emergency Fund
Just like a savings account for retirement or vacation, you need an emergency savings fund. Don’t rely on credit cards to bail you out of a medical expense or an emergency home repair. Or, at least, mitigate the costs partially by using an emergency fund to help cover the costs. Like any savings account, make contributions every paycheck or monthly. It’s essential to have some extra funds to fall back on. Credit cards are like the witch’s apple of solutions to an emergency. They might cover the initial expense, but now you are on the hook for interest, which can severely increase the total amount owed depending upon the interest rate.
APR Madness
For example, let’s say you need to make emergency home repairs, and the bill is $3,500. You have a credit card that you keep for small items like groceries that you pay off monthly to build credit. It has a max credit line of $5,000 with an interest rate of 16.8% APR (which was the average in 2020).
That increases your total amount owed to $4,095 on a bill that could have been $3,500 if you had an emergency savings fund. Unfavourable interest rates are what make credit cards pernicious. That’s why if you find yourself in debt, you need to —
Prioritize Credit Card Debts First, Other Debts Second
Or rather, prioritize the debt that has the highest interest rates, which — let’s face it — are often credit cards. Then move on to other debts that may not have such high-interest rates. Tax debts or different types of loans fall into this category.
Eliminating credit card debt is not easy at first, but there is light at the end of the tunnel with the proper guidance. There are companies out there that can help you to restructure or consolidate your debts without having to hire a bankruptcy attorney, or declare bankruptcy.
It can seem overwhelming, but —
There Is a Way Out of Debt
Unfortunately, on average, most Canadians carry higher debt loads than even our neighbours down south in the USA. If you are feeling overwhelmed by ever-mounting debt, contact DebtCare Canada. Consultations are free, and there are no harm is learning your options.
Take the next step toward debt relief.
About the Author
Veronica Baxter is a writer at Assignyourwriter, blogger, and legal assistant operating out of the greater Philadelphia area.
In the past, before the novel coronavirus (COVID-19) people might have gone to see a financial consultant in person for debt help or otherwise, but with social distancing in effect, that is not advised right now unless absolutely essential.
The holiday season is an expensive time for many! Between gifts, decorations, parties, and travel, the costs (and credit card charges) can quickly add up. To keep your budget and debt in check, holiday financial planning is a must.
Having financial troubles can be stressful no matter where you are in life – but it’s doubly so if you own a house.
Have you considered filing for bankruptcy or for a consumer proposal in Canada? If so, you’re far from the only one.
When you’re researching your options for getting control of your debt, you may find yourself confused by the vast array of terms out there – both for the options and the people who provide and manage them. This week, in an effort to clear some of the confusion, we are covering one crucial term – Licensed Insolvency Trustee.
You made it through the holidays and now the credit card bills are rolling in. You went a little over your original holiday budget (don’t we all?), and now the credit cards are maxed out with no real way to pay them off. Perhaps you’ll just make the minimum payments for a while, until you’re back on your feet and feeling more secure – but will that ever happen? Do most of us actually have that extra cash each month to cover those bills? Probably not, since we wouldn’t rely so heavily on credit cards for holiday purchases if we did.
