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How To Get Out Of Credit Card Debt

You have likely reached this page because you are experiencing stress over your credit card debt. You are not alone – consumer debt levels areSuperintendent of Bankruptcy Canada website high. Many individuals and families feel the pressure to reduce or eliminate debt and improve credit scores.

Aside from avoiding the stress and expense of credit card debt (high-interest rates!), if you are a young family, reducing or eliminating this debt will put you in a better position for a house purchase.

Here you will find the information you need to solve your credit card debt and move forward with less stress – and maybe even become debt-free!

How and Why Do People Get Into Credit Card Debt?

No one intends to run up their credit cards. In fact, most people intend just the opposite! How, then, do so many of us find ourselves in this position?

The Seductive Power of Credit

“Credit” – it’s a positive concept and word. If you have been given credit – in any context – then someone believes in you. What could be nicer?

When you are given credit by a bank or other lender (credit card issuers), you know that you have met their criteria. You feel that they trust you. You are proud that you have met their standards.

You’re not wrong – but consider that the motivation of banks, loan companies or credit card issuers is to profit from you (after they’ve complimented you) – and the interaction takes on a new light. However, we’re looking back with 20/20 hindsight. You’re in debt – now what?

How Did Your Debt Get This High? Check Your Credit Card Habits

Credit cards work on optimism. Like feeling that glow of acceptance when you are approved for credit cards or personal loans, being optimistic is just a part of being emotionally healthy. Unfortunately, credit card companies literally bank on the idea that you will be optimistic.

You are certain that when you use your credit card to purchase, say, a barbecue, that you’ll pay off the balance from your next paycheque. In the case of store credit cards, you may have been approached by an employee in the store for “instant approval” as you browsed a section of tempting equipment. There’s a limited-time offer – or a contest. So, you think – why not? You can pay off the expense over a couple of months – max!

However, things rarely turn out as planned…  

Credit Card Debt and COVID-19

There are special circumstances concerning the COVID-19 pandemic. If you or your family are among those affected by the resulting unemployment, you may have had no choice but to rely on credit cards for many months to make sure basic expenses were met. Yes, the Canadian government extended aid via the CERB and other programs… but in many cases, it was not enough to make monthly ends meet.

Many creditors, including mortgage companies, offered payment deferments during the height of the pandemic. Although it took some of the pressure off, it also allowed many creditors to glean more interest from their customers. For many individuals and families, debt simply rose and rose.

While government aid and payment deferments clouded the growing debt issue for many individuals, these were joined by a third factor: the courts of law closed. Therefore, the filing of bankruptcies, consumer proposals and lawsuits concerning debts all ground to a halt. 

This might seem like a good thing (and indeed, during the pandemic debtors were advised simply to carry on and provide for themselves and their families as they could) – but in 2021, these processes are back in full swing.

The Psychology of “Minimum Payment Due”

No one can argue that it’s not pleasurable to bring home a big-ticket item, while only needing to pay out a small fraction of its cost in the near future. It makes you feel wealthy! For a while…

Of course, as described above, you don’t intend to use your option of making minimum payments – you intend to pay off the purchase quickly. However, life has a habit of getting in the way. Other, more pressing or unexpected expenses often occur. Most credit card users find themselves using the minimum payment option at least some of the time, despite their intentions. If multiple purchases are made, you can find you have a whopping credit card balance, quite quickly.

The Canadian government recognized this issue in the 1990s, and in 2001 passed the Cost of Borrowing (Banks) Regulations. Under these regulations, banks must disclose in fine detail what your debt really means in terms of the cost of the borrowing (interest), and the consequences of “only” making the minimum payments (how many years it would take to pay down your balance). The aim was to curb excessive or unwise use of credit cards. However, despite the fine print, credit cards remain in wide use and many consumers experience debt issues with them.

Tips To Reduce Your Credit Card Debt

If your situation has not become unmanageable, there’s much you can do to turn things around with your credit card debt. The aim is to see your debt decrease, at the same time as moving your debt into credit sources that have lower interest rates. As we learn how to get out of credit card debt, these tips are key.

  1. Be a Statement Reader

    Reading your credit card statements may not be high on your list of fun activities, but it will help you manage and be aware of your debt. Your credit card statements not only tell you your required payment and when it is due, but also your interest rate (very important), and how long it would take you to pay off that debt if you made only the minimum payment (hint: it’s usually much longer than you think!). 

  2. Pay Extra into the Highest-Interest Cards

    If you are like most consumers, you have several credit cards in your wallet. Since you are now a statement reader (see Tip 1), you’ll know which of your cards have the highest interest debt. Target this high-interest credit to try to lower your balances more aggressively with larger payments. Pay the minimum into your other cards if you must, but prioritize payments into the higher-interest cards. This is the fastest way to lower your monthly credit card interest costs.

  3. Transfer Balances into Lower-Interest Cards

    This is a counterpart to Tip 2. Check your statements to see which card or cards charge the lowest interest rates. Hint: if your credit rating is still in good shape but you don’t have any cards with interest rates under 10%, you can consider applying for a new low-interest card so that you can transfer higher-interest balances into it. Just be sure that the low rate is not simply an introductory rate that will rise in a few months. Some banks offer unsecured “line of credit” VISAs or Mastercards – these tend to charge under 10% interest. 

  4. Reduce Your Expenses

    Don’t pay interest when you don’t have to. This may seem obvious, but one of the ways credit card balances creep up is that having easy access to credit can cloud your awareness of how much you spend, even on basics. Before we deal with basics, though – do you tend to use your credit cards for impulse purchases, or items you don’t really need? If you are having difficulty lowering your credit balances, this may be the reason. Check our next section, “Ongoing Credit Card Debt Reduction Strategies,” for advice on reducing basic expenses.

  5. Pay for Everyday Expenses with Cash or Debit

    This goes hand-in-hand with Tip #4, reducing your expenses. If you leave your credit cards at home and pay for items with cash or debit, you’ll be more aware of what you spend – and you will think twice before spending it! Rest assured, the credit card companies WANT you to be impulsive – so, foil them by using your credit accounts only for emergencies. 

Ongoing Credit Card Debt Reduction Strategies

Aside from the tips above that you can use everyday, here are some broader strategies. Make sure your credit card debt does not become a burden! 

Look to Your Finances – Are You Living Beyond Your Means?

The credit card companies want you to use their product. By its very nature, credit tempts you to live beyond your means – that is, to spend more money than you have, based on the income you make in a typical month. Again, they rely on your optimism – and on your honour, which will prompt you to pay them back with interest.

It is important to realize that the fact you have been approved for credit does not mean that you can afford to make use of all the credit that has been granted. In fact, it may be financially perilous for you to run your credit cards up to their limits. Credit card companies are fully aware that a certain percentage of their customers will become insolvent and be unable to pay as agreed. That’s no fun for anyone!

Do you make impulse buys with your credit cards often? Do you purchase items while telling yourself that you’ll be able to pay off the balance soon (but find that your balance is still sticking around months later)? Be honest with yourself, and realize that many consumers do this. Don’t allow yourself to make it a habit – try to reserve your credit cards for emergency use only. 

Make a Budget

To determine how your income stacks up against your necessary expenses, make a budget. Various online tools can help, or just get out a pencil, paper and calculator. It’s simply a matter of making two columns of figures. List your typical monthly expenses in the first column. If some of your expenses, such as insurance, are yearly, divide the amount by 12. You’ll need to list groceries (which may be hard to estimate – try saving your receipts for a month), utilities, mortgage/rent, leases, telecommunications (internet, phone, TV), eating out, entertainment, auto expenses such as gas and repair, monthly payments to your credit cards or personal loans, and anything else you pay during a typical month.

The second column is easy – your monthly income. 

How does it stack up? If your monthly income exceeds your monthly expenses, the remainder is “discretionary” income – you can spend it, or save it. If your income does not meet your expenses, you’ll need to find a way to reduce your expenses. Sometimes, just eating out less is enough to bring your budget into balance.

If your income does not meet your typical expenses and you are filling the gap with credit card debt – watch out! You need to amend that right away.

Credit Counselling

If you are aware that your income and expenses are out of balance, and budgeting is a challenge, you may benefit from credit counselling. Depending on what is available in your community, you may have a choice of services that charge a fee, and not-for-profits that provide credit counselling.

Beware of any credit counselling service that asks you for an up-front fee or is vague about what services they provide.

A good initial source of advice about your debt is a Licensed Insolvency Trustee (LIT). Credit counselling services often refer clients to LITs. Your first consultation with an LIT is free and confidential. He or she can assist with consumer proposals and bankruptcies (in fact, LITs are the only professionals who can file these on your behalf), but they can also advise on other debt management strategies and options.

In Too Deep to Recover from Credit Card Debt? There’s Still Help

Perhaps you’ve been reading this and thinking, “it’s too late for budgeting to help me.” Are you already late on paying several accounts? Are you getting calls from creditors or collection agencies? Are there court judgements against you from creditors, or have your wages or bank account been garnished? These are all signs that you are insolvent and need a new financial start. 

Are You Insolvent?

You are insolvent if you can’t make your payments as they become due, and your total debts exceed the total of your assets. If this is a temporary condition while you, say, wait for a new job to start, you may be able to solve the situation yourself. However, in most cases, insolvency persists until specific steps are taken to resolve it.


Most consumers are very hesitant to consider personal bankruptcy as an insolvency solution, but you should keep in mind that Canadian legislation treats bankruptcy not as a punishment but as a way for those with unsolvable debt problems to get a new financial start.

Bankruptcy deals only with your unsecured debts – typically, credit cards and accounts, personal loans, overdrafts and income taxes. 

Secured debts (those that are secured with collateral, such as mortgage debt and auto loans), are not cleared in bankruptcy. If you have a mortgaged home, a Licensed Insolvency Trustee can advise you on how it would be handled in bankruptcy – regulations vary by province and territory.

Consumer Proposal

A consumer proposal can be less complicated than bankruptcy and will allow you to remain in full control of your finances. With the help of a Licensed Insolvency Trustee, your financial situation is analysed, including your monthly income and household expenses, and a reasonable monthly payment is arrived at. In most cases, your Trustee presents your creditors with a proposal that you pay this monthly amount towards your debts for up to five years.

Where to get a consumer proposal. 

As with bankruptcy, a consumer proposal clears only unsecured debts.

In most cases, your creditors will agree to the proposal, because your Trustee will advise you to make a reasonable and fair proposal where you pay as much money as possible towards your debts without hardship. Once you have completed the payments and you’ve received your Certificate of Completion, you will be released from your unsecured debts. 

Consumer proposal works best for those with regular monthly income.

Debt Consolidation

Banks offer debt consolidation loans specifically for paying off high-interest credit. A debt consolidation loan can be a solution to credit card debt, but only if you don’t resume your habit of using credit cards! 

Ask at your bank about a consolidation loan. They will assess your situation and let you know if you qualify. Unfortunately, if your credit score has already been lowered due to high credit card balances or missed payments, your bank may not approve you for the loan. Ironically, those who need these loans the most are often the least likely to qualify for them.

The Special Case of Student Loan Debt

Student loans in Canada are handled differently from other forms of unsecured debt. In most cases, you must have been out of school for seven years to include this type of debt in a consumer proposal or a bankruptcy. A third possibility with student loans is to apply for a court-ordered discharge of the debt – this option may be available under certain conditions, five years after you leave school. Read more on the Superintendent of Bankruptcy Canada website.

If considering any of these options, you can seek the advice of a Licensed Insolvency Trustee.

Insolvency and Your Credit Score

Some debtors worry that filing for bankruptcy or consumer proposal will negatively impact their credit score. However, if debt problems are so serious that you have become insolvent, you will find that your credit score has already been negatively impacted by late payments and credit overuse. Thus, dealing with your debt is the best way to allow your credit rating to recover.

The record of your consumer proposal or bankruptcy kept by the credit bureaus is temporary. A consumer proposal notation on a credit report is removed three years from the date the proposal is completed, or six years from the date it was filed, whichever is sooner. A first bankruptcy is removed from a credit report for six years after the discharge date, or seven years after the date it was filed.

Get Started! Resolve Your Debt Problem (and Sleep Better)

A Licensed Insolvency Trustee is a trained and federally certified professional who can advise you on all the options mentioned above, and more. If you are concerned with how to get out of credit card debt, this is the professional you should meet with. Rest assured, the Trustee will offer non-judgemental, valuable advice and will be sensitive to your situation. 
The best debt solution is one that benefits both the debtor and the creditors – and Licensed Insolvency Trustees are specialists in finding such solutions. Your first meeting is confidential and free of charge. Connect with a Licensed Insolvency Trustee today!