Canadians are using their credit cards more and more for just about everything. One reason behind this is the rising cost of living, which is being fuelled by soaring inflation. In fact, Equifax Canada reports that Canadians’ average credit card balance reached a record high of $2,121 at the end of September.
A third of Canadians can’t pay off their credit card balance every month, according to the Canadian Bankers Association. The problem is the hefty interest rate on credit card balances. If you only pay the minimum every month, you could be in debt for years, even decades. Let’s say you decide to spend $1,000 on a smart phone. You make the minimum payment (3.5% in Quebec) on your credit card balance every month (at 19.9% interest). It would take you 8 years and 11 months to pay it off completely. Plus you’d pay $747.80 in interest. So the phone would actually end up costing you $1,747.80.
During the first year of the pandemic, many Canadians were able to pay down their credit card balances. Between February 2020 and January 2021, total credit card debt shrank by 18.5%, according to Statistics Canada. However, inflation has forced many Canadians back to square one. It’s harder now to stick with those healthy financial habits and stay on track. Costs keep rising, so spending rises too.
Here are some tips to get out of the credit card debt spiral.
1. What’s the first step in the fight against debt?
Whopping credit card debt doesn’t happen overnight. It usually grows over time when you put off paying the full balance on your card. Or when you shuffle your debt around from one card to another. That’s when the alarm bells should start going off in your head. Because the very first step in dealing with debt is being aware of the problem. Otherwise, your debt level could snowball out of control in a few short months.
2. How to rein in credit card debt
We often think it’s just a matter of tightening our belts for a few months. But is that really the answer? If we lost control before, chances are it will happen again as soon as the belt is loosened. The solution is to take a good, hard look at our spending by drawing up a budget. Reducing debt requires a permanent fix, not a band-aid solution. Everything that’s not essential has to go. And not just for a few weeks, but for months and perhaps even years to come.
3. How to guard against spending on non-essentials
Take a look at your credit card statements and question every single purchase. That’s your chance to track down all your non-essential spending so you can get rid of it. Examples:
- Music streaming subscriptions (Spotify, Apple Music, etc.)
- Video streaming subscriptions (Netflix, HBO, Crave, etc.)
- Magazines, newspapers, all those apps, etc.
- Restaurant meals, movies, spa days, etc.
- Meal delivery kits.
You don’t need to cut out every last thing – you can reduce excessive spending and still enjoy life. For example, do you really need four streaming services? Maybe just one is enough. There’s also free content on good old-fashioned television. You could check it out.
4. How to prevent impulse buys
That new coat, those fancy shoes, the latest phone – do you really need them? Usually the answer is no. Impulse spending doesn’t buy happiness, and it can hammer your credit card balance. Often, the only thing impulse buying does is give you a false sense of control.
One simple way to guard against impulsive purchases is to stay away from triggers. How? By avoiding online shopping and trips to the mall.
If, despite everything, you give in to the craving to buy that handbag or designer dress, the consequences will catch up with you. The urge to buy it now often fades after a good night’s sleep. It’s that simple.
Need help with your budget? Talk to an advisor.
5. How to buy gifts without overspending
During the holidays, we want to show our generosity by giving presents to all our loved ones. But maybe we should rethink that idea. Does your mom really want another scarf? Does your partner really need a new tie? And what about that lavender-scented candle for your best friend? The questions answer themselves.
Why not change things up? How about offering home-cooked meals, babysitting services or a walk in the woods? It’s bound to make more of an impact than a new trinket. Your loved ones will be just as pleased, and your gift-giving won’t add to your debt.
6. How to avoid FOMO
Does social media give you the impression that all your friends are living the good life? Maybe you have FOMO or “fear of missing out,” also known as “keeping up with the Joneses.”
Well, nobody says you have to do what they do! It’s possible they’ve maxed out their credit cards and lines of credit on dining out, clothing and travel. They may be in more debt than you. Are they really happier living in the red? While the image they project on social media may be picture perfect, how well do they sleep at night?
Credit cards should be used for purchases, not as a means of financing. Don’t have enough money for a tropical getaway? Try a staycation instead. You’d be surprised how much there is to see and do right outside your door. What better way to rediscover your neighbourhood, your city and your country, all while keeping debt at bay.