Finances stretched to the limit?
Here’s how to pay off credit card debt faster.
For many Canadians, the first few months of the year signal a time to reset—and that often includes making financial resolutions. In 2022, however, that could be harder to do. Inflation and the rising cost of living are now among Canadians’ top concerns, surpassing even COVID restrictions and personal well-being.
While you can’t control those economic circumstances, one of the most effective ways to improve your financial health is to reduce or pay off your credit card balances. And thankfully, there are strategies you can put to work. Read on to discover how you can pay off your credit card debt faster to improve your financial health.
Mindfulness, or the practice of being present and aware, is not going to reduce any debt on its own, but it can change your relationship with spending and help you to build smart money habits.
Before you make a purchase, take a moment to consider whether you really need that item, and whether you’re getting a good value. Sometimes, we buy things to relieve stress, anxiety or boredom—a phenomenon known as emotional spending. Pausing to recognize our feelings can help curb impulse buys.
Being present is a practice, so you will need to create a habit of it. Each thoughtful decision will help you build a positive habit and move you towards a financially healthy mindset.
Paying down debt shouldn’t be a haphazard endeavour. If you want to make a serious dent in your credit card balances, there are two main strategies you can consider: snowball and avalanche.
The snowball method involves paying as much money as possible toward the card with the lowest balance in order to clear the debt quickly. Once it’s paid off, you move on to the next card, and so on—creating a snowball effect. This process is effective for people who respond well to positive reinforcement, as it motivates them to stick to the plan. The reward you get from an early success helps to maintain momentum.
With the avalanche method, you focus on paying off the card that charges the highest interest rate first. The idea is to slow—and eventually eliminate—the interest charges that bloat your debt load the most, thereby saving you money.
Both strategies work well (as long as you keep making the minimum payments on all your balances), so you can select the approach that best suits your personality.
For credit card debt, you can reduce the amount of interest you’ll have to pay back by transferring your balance to a lower-interest credit card, especially one with a solid balance transfer promotion.
Take, for example, the no-annual-fee MBNA True Line Mastercard*. It charges a low 12.99% interest rate on purchases and balance transfers (24.99% on cash advances). New cardholders get a welcome offer: 0% interest for the first 12 months on balance transfers completed in the first 90 days. There will be a transaction fee equal to 3.00% of the dollar amount of each balance transfer initiated with this application. A minimum fee of $7.50 will apply to each balance transfer transaction. (This offer is not available for residents of Quebec.)
Let’s say you carry a balance on a credit card that charges the typical interest rate of around 19.99%. With the True Line card, you could transfer your debt and get a full year, interest-free, to reduce or eliminate it. After the promotional period, the interest rate rises to just 12.99%—the card’s regular interest rate for purchases and balance transfers—which saves you 7% compared to what you’d be paying with a typical card. For every $1,000 in debt, that’s a difference of $70 per year.
You could also use available credit on your credit card to transfer funds right to your chequing account.
There are credit cards tailored to all sorts of situations and spending habits. If you’re looking to reduce your debt quickly, a lower-interest card may make a lot of sense for you.
If improving your financial health was one of your resolutions, now’s the time to make some changes. By being present with your money matters, finding and sticking to a debt-repayment strategy and using a lower-interest credit card, you can set yourself up for a better financial picture in 2023.
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Most people I know accumulate credit card debt by simply “living beyond their means”. Unless it is a really “critical” expenditure, if you can’t pay cash for it … DON’T BUY IT !!!