How to crush your credit card debt when you really can’t afford to

Do you experience sleepless nights over your credit card balance?

Are you only making minimum payments until “extra” cash comes your way?

Is the limit on your card simply not enough to keep up with your costs, and is already maxed out?

If you answered yes or even maybe to any of these questions, you probably can’t afford your credit card debt.

You’re going to be OK. Read on for my best advice on how to crush the debt when you really can’t afford to.

Deal with it, don’t dwell on it

There’s little value you’ll get from beating yourself up over the financial mistakes you’ve made in the past. We’ve all made them. Acknowledge that you have an issue with debt, then move on. It’s time to take action to fix the situation. Once you’ve started making progress on the balances, you’re going to find that your behaviours and thinking around money will start to shift in a positive way. You’ll even start questioning your values, the relationships in your life, and how you’re spending money within your budget (and yes, you need to have a budget!). This is a good thing; a time of reflection.

Consolidate to a lower interest rate

Your first money move is to see if you can consolidate all the credit card balances to a lower-rate loan or line of credit. This will bring down the interest costs you pay each month, which means more of your payments will go toward the principal balance rather than interest. Consolidation loans can be tough to qualify for, and so if you are declined on your first application, don’t fret. Take the next six months to make progress on the balances and then try again to consolidate. Don’t keep applying though; this will negatively impact your credit score.

Some people turn to family members to help consolidate their debt balances. This can be a good option, but just be clear with whomever is helping you regarding any strings attached, and draw up a contract. I once mediated between a father and son because of a family loan of this nature, and it ripped their relationship completely apart.

Pay extra on the highest interest balance

Multiple balances? Start paying a bit extra each week on the highest-interest balance. This might mean you’re forgoing takeout in order to apply an extra $25 per week on the card costing 21 per cent interest. Just a few extra dollars weekly is also called the snowball method of repayment. It starts to build significant momentum as the snowball rolls down the hill; in other words, you’re really going to see the balance decline much faster after a few weeks of doing this. Once the highest-interest balance is paid off, apply this method to the next highest-interest balance and so on. The good news is the next card will be even faster to pay off because you’ll have money from the previous card’s payments, plus you’ll have that extra weekly money you can put on it, too. Repeat this until all the balances are paid off. You’ll start to see your credit score climb upwards within about 90 days.

Sell stuff to pay for the balance(s)

Have an extra Nintendo kicking around? A Sea-Doo? A snow blower? Designer bags? It’s time to post all this stuff for sale online (Kijiji, Facebook Marketplace, eBay, etc.). If you went overboard on your car purchase or signed a lease for a place you really can’t afford, you might need to downsize these bigger items, too. Put all the proceeds on your highest-interest balance.

Listen, I know this option might feel icky to you, but take comfort in knowing that financial peace of mind will feel better than any of these short-term sacrifices you’ll be making; positive money psychology proves this to be true.

Make more money

If you have the capacity to take on extra shifts, to work a few more billable hours, to get a side-hustle, now is the time. If you’re due for a raise, promotion or job change, get on it. Any extra money you can earn — including tax refunds and bonuses — put it all toward your debt. And if someone owes you money, now is the time to call in that loan and put it toward your credit cards.

If you simply can’t keep up

If you’ve tried all of these options and you’ve given them serious effort for at least 90 days and you still can’t meet your payment obligations, you may need to start working with a licensed insolvency trustee, who can help you prepare a consumer proposal. This is a process where an agreement is made between the various lenders you owe to pay them something back, but often not everything, and at a lower rate. The downside with this strategy is your credit score will be negatively affected; however, it’s not as severe an impact as declaring bankruptcy, which should be a last alternative.

Changing your money story, and paying off credit card debt, takes time and hard work, so don’t give up. If you need support, reach out to a financial adviser to help you work on budgeting and better financial behaviours. You’ve got this!

And, whatever you do, don’t take on more debt when you’re paying off existing debts; it will only perpetuate the cycle.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.