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.