Credit Card Debt

Most individuals who declare bankruptcy in Canada have outstanding credit card debts. Many people use credit cards in order to pay for their daily purchases. However, debt becomes a serious issue when individuals are unable to pay their entire balance in full. The debt accrues through the accumulation of penalties and interest when the consumer is unable to meet his payments in a timely manner. The crediting company will impose a late payment penalty and inform the credit rating agency of the late payment. This will have a negative impact on the credit rating of the individual. Furthermore, the penalty may result in increase of the interest rate which the client currently pays. It is possible that the other creditors also increase their interest rates even if the person is able to meet his monthly dues. This event is referred to as universal default. The combination of high interest rates and universal default may result in bankruptcy. In this situation, the crediting institutions are not entitled to further payments unless they manage to challenge the bankruptcy status. Crediting companies are generally willing to offer an alternative settlement to those individuals who are about to declare bankruptcy. Obviously, the last option reduces the amount of their profits and threatens their sustainable growth.

Individuals in a dire financial situation may contract a credit counselor who will compile a list of all credit card companies and the dues owed to them. He or she will come up with an individual repayment plan, based on the information supplied by the client. Then, the credit counselor will get in touch with the credit card companies and send settlement proposals to them. Most creditors will agree with the arrangements. In return, the client will gain an affordable monthly payment.

Individuals should reduce their monthly expenditures and find some alternative sources of income. This will increase the amount which is available for debt repayment. Sometimes, credit companies may come up with ‘skip a payment’ offers. As tempting as it sounds, this option will compile additional interest on the one that the debtor already pays. Another option that the credit companies advertise is the ‘No payments for 90 days’. Here, late payments are charged with extremely high interest rates that reach 35 percent. In fact, this is a quick way to accumulate more debt.

A couple of alternatives help to reduce and eventually eliminate one’s credit card debt. Firstly, individuals should aim to pay off their high interest credit cards. They may proceed with the lower interest credit afterwards. Secondly, debtors should establish their financial goals and examine them in order to see what is reasonably accomplishable. Thirdly, people in debt should keep just one or two of their credit cards and use them only in case of emergency. They should do their best to pay all purchases in cash. Fourthly, it is best to estimate the amount that can be reasonably devoted to debt repayment. If monthly dues are difficult to manage, the debtor should consider other settlement arrangements such as consumer proposals and the like.

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