One of the fastest ways to bankruptcy is the use – or should I say “misuse” – of credit cards. One of the more common reasons that people end up filing for bankruptcy is due to too much credit card debt. Credit cards are so often too seductive because they offer the ability to buy what you want now. You can then pay it off later, using very small and affordable monthly payments. Canadian credit cards offer a way for us to make attractive purchases that we might not be able to make otherwise. Suddenly, it seems as though we can afford anything we want. The low monthly payments seem reasonable, and easy to fulfill. That is one of the biggest problems associated with credit cards. It is easy to forget about the high rate of interest that you are paying; instead you consider the low minimum payments you make each month, and count yourself lucky.
You can continue for years, making minimum payments each month and building up credit card debt. However, one day something may happen. You could have your hours cut at work, or maybe your minimum payment will be increased. You might have a costly hospital stay, or your home may be struck by a natural disaster not covered by your home insurance. Suddenly, your credit card payments don’t seem as affordable as they once did. After looking at your situation, it dawns on your how much credit card debt you have. The only way out of your financial mess may seem like bankruptcy.
Douglas Hoyes, a bankruptcy trustee who has seen more than his share of desperate victims of their own misuse of credit cards, points out that many people filing for bankruptcy or a consumer proposal have just under $20,000 in credit card debt at the time of filing. That’s quite the financial wake-up call for many people with credit cards. It also illustrates the rather unfortunate effect that too many credit cards can have on one’s finances. Many people just go along, living with their credit cards, until something happens to put them in a tough financial situation. With their credit cards maxed out, and quite often no emergency account, there is no way to meet their debt obligations. Bankruptcy appears to be the only choice.
Avoid Credit Card Debt
Those who want to avoid bankruptcy do their best to avoid credit card debt to begin with. Bankruptcy can damage your credit score, and cause other financial problems. On top of that, the financial strain can begin to take its toll on your relationships.
Avoiding bankruptcy requires careful financial planning. You should create a budget, and track your spending. Live within your means so that you are not acquiring debt. Each month, pay off your credit cards. You can use credit cards as part of your financial spending plan, but you need to be careful to avoid carrying a balance. Finally, set aside money for emergencies. That way, if unexpected expenses come up, they won’t be as devastating. Being debt free, and having some savings built up, can go a long way toward helping you stay away from bankruptcy, and providing you with some of the cash flow you need.
With careful financial planning, credit cards can be a helpful tool, rather than a path to bankruptcy. Don’t let something so useful become your downfall.
Your scribes are Corey Rozon, a freelance writer, and Drew Cassels, who represent this Canadian website that provides information on a selection of credit card Canada offers, a website that helps the public better understand how to use their credit cards more effectively and responsibly.