Minimum Repayment on Credit Card Costly

by J. Douglas Hoyes

If all you do is make a minimum repayment on your credit card each month, you could end up paying thousands more in interest.  That’s one of the messages we learned from a Hoyes Michalos / Harris/Decima study we released today on credit cards.

By just making minimum payments on credit cards the interest keeps growing, and you can get deep into a financial hole.  In the survey we found that of those carrying a balance, 1 in 4 say it will take more than a year to pay off their outstanding balance, and 1 in 20 say that they will never be able to fully pay off their credit card debt.  That’s scary.  So what can you do?

When I meet with people here in my Cambridge office and they raise their eyebrows and ask “how to pay credit card???” I give them a simple approach:

First, start by trying to work it out on your own, by cutting your expenses, or increasing your income, and using the extra funds to get out of debt.  Of course that’s easier said than done, since it’s not easy to just increase your income, and most of our expenses, like rent, are fixed and can’t be quickly reduced.  That’s still the place to start, and our survey showed that 56% of Canadians have considered cutting expenses, and 32% have considered increasing their income (through a second job, or working overtime).

If that’s not possible, it’s time for you to give us a call and we can help you explore other options.  Only 3% of the people in the survey considered a consumer proposal, but for over half of the people we help in Cambridge that’s the best way to make a plan to deal with their debts.

Here’s a quick example of how a consumer proposal works:

I met with a married couple (I’ll call them Joe and Jane, but that’s not their real names) and due to some medical issues their income was reduced, and they were only able to make minimum payments on their credit cards.  They realized that if they didn’t do something they would always have credit card debt.

The minimum payments on credit cards they had were over $1,000 per month, and they couldn’t afford it.  I reviewed their situation and after understanding all of their options they decided to file a consumer proposal.  We reviewed their budget and offered a proposal to the credit cards and other creditors of $400 per month, and the creditors accepted.

Joe and Jane are very happy, because while they couldn’t afford minimum payments on credit cards of $1,000 per month, they can afford $400 per month.  They are back on track financially.  They got the fresh start they needed.

If you have credit card debt, or any kind of debt, give my office in Cambridge a call at 519-622-3773 or at 310-PLAN, or e-mail us, and give us 30 minutes to explain how you can be debt free.

About

Douglas Hoyes is the co-founder of Hoyes, Michalos & Associates Inc., Ontario’s largest independent personal insolvency firm, and the trustee responsible for the Hoyes Michalos Cambridge office.

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