Five money hacks to reduce credit card debt

Tackling credit card debt often requires a multi-pronged strategy. This article will give you several tried-and-true tips around earning, spending and saving—including one that some Canadians may not be aware of: switching to a balance transfer credit card, especially if you find one with a welcome offer that includes a very low—even 0%—interest rate.

These five money hacks will help you shrink your credit card debt, fast.

1. Stick to a budget

At its most basic, a budget is the accounting of your income and expenses. If you’re paid a salary, your income will be straightforward and consistent. If you freelance, are self-employed or have multiple income streams, you’ll need to add up your invoices and make educated estimates for each month.

Next, tally up a realistic accounting of your monthly expenses. Start with major expected expenditures like rent, food and transportation, then work your way down to your discretionary spending like meals out, clothes, subscription services and entertainment. Subtract your total expenses from your total income. Anything left over can be put towards your debt (and savings if you have the room). If you spend more than you make, you’ll have to identify where you can cut your spending so you can pay down your debt and eventually build savings and investments.

You can simplify this entire process with a budgeting app like Mint or YNAB (You Need A Budget), both of which are free and also include financial education tools.

2. Free up money

Even if you have money left over in your monthly budget, the more income you generate, the more you can apply towards credit card debt. The quickest way to free up money is to cut your spending. Review your utilities, apps, subscriptions and other purchases to make sure you’re not paying for unneeded products or services.

Depending on your circumstances, you might also consider requesting overtime hours or asking for a raise, taking on a second job or starting a side hustle to raise funds quickly. Monetizing hobbies, like selling goods on Etsy or eBay, can also help boost your income. Not everyone is able to do these things, so be realistic with yourself about what you can or can’t do.

3. Pay more than the minimum

Each credit card statement shows a minimum payment amount you must meet to keep your account in good standing. Ignore it. Instead, strive to pay as much as you possibly can each and every month (while never paying less than the minimum).

You’ll be charged interest on what you owe, including your original balance plus interest. Interest charged on interest is called “compound interest,” and it’s the reason why a modest debt load can balloon in just a few months. Larger monthly payments will be applied to the interest—not just the principal—so you can slow compounding interest.

4. Pack a snowball or start an avalanche

Consider your debt repayment strategy and make sure it’s the right one for your situation. With the snowball method, you focus on paying off your smallest debt first, and once it’s paid off, start paying down the next largest debt. As your debts are paid off, the amount of money you can devote to them “snowballs,” so you gain momentum. This strategy can be really effective for people who are encouraged by small, fast wins.

With the avalanche method, you focus on the debt with the highest interest rate first. Although it might take a long time to completely pay off your first card, you could save a load of money by eliminating the debt being charged at the highest interest rate first. If you feel like you can stay motivated without a quick result, consider the avalanche method.

5. Switch to a balance transfer credit card

By now you’re familiar with compound interest and how it increases your debt over time. By choosing a card with a much lower rate, cardholders can slow down the runaway effect of compound interest and start to catch up on their debt payments.

When considering making a balance transfer from a higher-interest card, you should look at three variables:

  • the interest rate
  • the transfer fee
  • the time period

For example, when you transfer a balance to the MBNA True Line Mastercard* within 90 days of opening the account, you’ll pay a one-time transfer fee of 3% (minimum $7.50) and get a promotional 0% interest rate on the transferred balance for the first year. That means you’ll have 12 full months to pay down your debt without accumulating more interest on it. After that, the standard rate of 12.99% applies, which is around 7% less than most regular credit cards. 

Balance transfer credit cards can reduce—or eliminate!—the interest (and therefore, the compound interest) you’ll pay on your debt, buying you the time you need to pay it off.

Paying down your credit card debt is not an easy task, which is why you’ll need to create a plan. Use these five money hacks to boost your earnings, reduce your spending and find the money you need to become debt-free.

MBNA True Line Mastercard*

The MBNA True Line Mastercard checks two key boxes for cost-conscious cardholders: it has no annual fee, and its 12.99% interest rate is much lower than that of a typical credit card.

  • Annual fee: $0
  • Welcome offer: Get a 0% promotional annual interest rate (“AIR”) for 12 months on balance transfers within the first 90 days of opening the account.
  • Interest rate: 12.99% on purchases and balance transfers, 24.99% on cash advances
  • Additional benefits: Discounts at Avis and Budget Rent A Car
  • Note: This offer is not available for residents of Quebec

Read more about credit cards:

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