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Published September 8, 2021

How to Get Out of Credit Card Debt

Out-of-control credit card debt can hurt your credit, affect your family and limit your financial freedom.

Most people who get a credit card intend to use it responsibly. But, unfortunately, sometimes life happens, and you end up carrying a balance. If left unchecked, your credit card debt can quickly spiral out of control. To ensure you’re staying focused on your finances, you need to understand how credit card debt affects you.

What is credit card debt?

Credit cards are a handy tool since they can help you manage your finances and build your credit score. That said, if you’re constantly carrying a balance, you’re in debt to your credit card provider.

Credit card debt can be crippling since most credit cards have an interest rate of 20% or more. That’s significantly higher than other kinds of debt, such as mortgages or auto loans.

To put it simply, if you’re always carrying a balance on your credit card, it may be challenging to balance your budget since you’re constantly making card payments.

How to avoid credit card debt

Even though your credit card statement says you only need to pay the minimum payment, you should always strive to pay the total balance. Anything less and you’ll incur interest charges. Obviously, you want to avoid those since no one wants to pay more than they have to.

Having credit card debt can also negatively affect your credit score. For example, let’s say you regularly carry a balance of $3,000 and you have a total limit of $5,000. That means your credit utilization ratio is 60%, which is quite high. How much credit you’re accessing relative to what you have available is one factor the credit bureaus use to determine your credit score. If you’re always carrying a balance, you may not appear as creditworthy.

It’s also in your best interest to avoid credit card debt if you plan on buying a home in the future. When determining how much they should lend you, lenders typically look at your total debt service (TDS) ratio. Your TDS ratio includes all your housing costs, plus any outstanding debt. So if you’re carrying a lot of credit card debt, it will directly affect how big of a mortgage you can afford.

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Is my family responsible for my debt?

Credit card debt can affect your family in a variety of ways that you may not be aware of.

Let’s say you’ve ignored your bills and your credit card provider has sold off your debt to a collection agency. Many collection agencies can be highly aggressive and call your home or even work to get you to pay. While your debt doesn’t directly involve your family, collections may be hostile towards them in an attempt to get you to pay.

There’s a scenario where your debt could directly affect your family. Let’s say you’re a joint credit cardholder. If you rack up a bunch of credit card debt, the primary cardholder would be responsible for paying off the balance. This also applies to co-applicant credit cards. If you had a family member co-sign for you when you applied for your card, they’d be equally responsible for any outstanding debt.

If the credit card debt is solely in your name, only you are responsible for paying it. Even if you were to pass away, your family would not be personally liable for your debt. However, a credit card company can make a claim against your estate for payment of your debt.

How to pay off debt

Admittedly, clearing your credit debt is not always easy, but there are a few things you can do to help get on track.

Apply for a low-interest credit card

Many low-interest credit cards have an option that typically comes with an attractive interest rate so you can transfer your credit card balance. For example, you might pay 3.99% interest for nine months. After that promotional period ends, you’d still pay a lower interest rate than you would with typical credit cards.

Get a consolidation loan

You could apply for a line of credit at your bank since the interest rates are pretty reasonable. If approved, you’d take that money and immediately pay off your credit card debt. You would then only need to worry about paying off your line of credit.

Talk to a licensed insolvency trustee

If your debt is out of control and you can’t manage it anymore, you should speak to a licensed insolvency trustee. They can look at your situation and determine if a consumer proposal or declaring bankruptcy is a viable option.

Getting control of your credit card debt is not always easy and you may need some help. However, once you acknowledge that you have a problem, you can take steps to get back in the green.

About the Author

Barry Choi

Barry Choi is a freelance personal finance and travel expert. His website is one of Canada's most trusted sites when it comes to all things related to money and…

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