Credit cards

Usually, if a certain type of credit is easy to obtain, it will be more expensive. A credit card is a perfect example of this. You can obtain a credit card without the intervention of the bank’s financial advisor and little if no proof of income will be required. You also get access to a large sum of money right away. With a credit card, money becomes more abstract and it’s easy to lose track of your spending. And once you’ve reached your credit limit, you can apply online to raise it.

A credit card can be very handy: you pay it back once a month, you can get rewards, it gives you a detailed report of your spending, consumer laws protect you against fraud, there are no transaction fees if the balance is paid in full at the end of the month, and you can use it to make online purchases or reservations.

However, because it’s easy to get a credit card, it’s very popular among students, lower income workers, retirees and people with a lower credit score. With an average interest rate of 19%, financial institutions are more willing to take on a higher risk. Plus, lower minimum credit card payments (currently at only 2.5% per month) give the borrower a sense that their situation is under control if they choose to only pay the minimum, although it could take them 15, 20, or even 30 years to pay it back!

If you’re dealing with a lot of credit card debt, the first thing to do is to see if your debts can be consolidated. By paying back all your credit cards with a loan from your financial institution, you can reduce the interest rate significantly (from 20% to 12%), combine all your monthly payments into a single payment (to pay back the loan) and force yourself to pay it all back within 5 years.

If you are not eligible for such a loan either because of your credit rating or if you cannot afford the proposed consolidated loan payment, a consumer proposal may be a good option for you. It will reduce your total debt load, eliminate all interest charges and consolidate all your payments into a single payment. Plus, you will have to pay back the amount you and your creditors agreed on within 5 years.

If you do not have enough income to offer a proposal to your creditors, bankruptcy may be easier, cheaper and quicker than the other two options. In fact, a first-time bankruptcy lasts 9 to 21 months, depending on your income, while a proposal often lasts 3 to 5 years, according to the amount you need to pay back and your financial means.

The sooner you have a clear picture of your personal finances and your options, the better your chances of pulling through.