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Credit cards often feel like a security blanket for unexpected expenses. But they have a way of turning into a crutch for everyday expenses, too. At least, that’s true for the Canadians that saw an average of $21,131 in non-mortgage debt last year, much of that credit card debt.
The solution? Stop using them. We know; easier said than done. That’s what many of our licensed insolvency trustees hear from our Canadian clients struggling with credit card debt. If you’re one of them, this guide is for you.
We’ll discuss the consequences of keeping credit cards despite mounting personal debt, and how to let go of credit cards so you can get back on track with your finances.
Reasons to give up your credit cards
Life without credit cards might sound scary, but out-of-control debt actually causes more harm than good:
1. Late payments linger on your credit report
Thinking of finally buying your first home? Most lenders require stellar credit to grant you a mortgage with reasonable interest. And if you have a bunch of red marks from late or inefficient credit card payments? You lose some of the lenders’ good graces. Of course, this applies to more than just home loans. A solid credit score is important to secure car loans, business loans, and personal loans with lower interest than credit cards.
If your credit card debt becomes too large to handle, you might become late on payments. Those stay on your credit report for six years.
Now, what if you make your minimum payments on time every month? That might save you from marks on your credit score. However, it won’t save you from mounting interest that will impact your ability to save for other financial goals.
2. You’ll pay too much in interest
Let’s say you have a steady credit card balance of $10,000 each month. You can only afford your minimum monthly payment of about $258. If you can’t get that balance down, it’ll take you years to pay off your credit card and you’ll pay an extra $5,000+ (50%!!!!) in interest.
Check out this handy interest calculator from the Financial Consumer Agency of Canada to plug in your own credit balance details.
The gist? If you continue to use your credit cards, you’ll continue to pay more interest over time. That’s precious money you could put toward any type of financial goal or other debt, like student loans, mortgage payments, and even everyday expenses like groceries that you currently use your credit cards for.
3. You spend more with credit cards than you would with your own money
At the end of the day, credit cards are an illusion of capital. It’s much easier to spend $100 on credit than $100 in cash. Why? Because you don’t see the money physically leave your account. It’s more than convenience; it’s actually psychological, according to researchers at MIT. They found a link to credit card spending and reward centers activated in the brain.
The result? People tend to spend more on credit than they would with cash — even double, according to some studies.
How to let go of credit cards and adjust to life without them
We know the ramifications of credit card debt; great. Now, how do you get used to life without them? You might go for the kitchen scissors and cut them all up, but we have a few more sustainable options to help you feel more comfortable with your finances enough to stop needing your credit cards.
1. Follow a budget (or anti-budget)
Imagine driving to a new destination without a GPS. You might drive in circles and get to where you’re headed, only after wasting a ton of gas and precious time.
Think of a budget like a GPS for your finances. It keeps you aware of your spending while mapping out a route toward your financial goals. Plus, it helps you limit frivolous spending so you don’t have to rely on your credit cards.
Budgets might look different for everyone depending on whether you live in a high-rent city versus town, have children, or have a lot of debt payments. They can also help you consider lifestyle changes to keep your spending down.
You can check out some budget tracker ideas here. Or, you can access our money management coaching services to help map out a custom budget that will loosen your dependence on your credit cards.
2. Try the snowball (or avalanche) method
Do you find your income going exclusively to debt? That might be why you tend to rely on your credit cards even more. One way to get used to life without credit cards is to eliminate your piling debt. You could try a couple of methods to do that, like:
- Snowball: Pay your smallest debts off completely, then move onto bigger debts, one at time.
- Avalanche: Put most of your money into your highest-interest debt first before moving onto smaller debts.
And if all else fails?
3. Assess debt relief options with an expert
If you feel like you can’t handle personal expenses without your credit card, you might need extra support with your debt situation. Maybe you have multiple debts that eat up your income so much that you rely on credit cards for basic expenses. In that case, you have debt relief options available and you don’t have to jump straight to bankruptcy.
We recommend filing a consumer proposal. This agreement allows you to pay a portion of your debts at a monthly fixed payment, interest-free, for up to five years. We’ve even seen debts reduced by 75%; however, a licensed insolvency trustee must assess your financial situation to determine the amount to be repaid.
The right debt relief option is different for every scenario, which is why we recommend you speak with a licensed insolvency trustee to discover a custom solution.
Get Ahead of Credit Card Debt with Remolino & Associates
Bottom line? Learning how to let go of credit cards won’t happen overnight. Credit cards might feel like a security blanket, but the cost of credit card debt depletes your financial security over time. If you feel hesitant to let go of your credit cards, you don’t have to make the change alone.
Remolino & Associates are debt relief specialists that support thousands of Ontarians with various types of debt. Whether you just need a sounding board to assess your debt situation or want to explore bankruptcy options, we’re here to help. Book a consultation today and free yourself from the credit card debt.