How to break the credit card cycle before you max out

Q:

We worry that we have formed a habit and that it may be too late to break it. My husband and I went through a rough time in the year leading up to COVID and got into debt. Then we were fine throughout the pandemic because we were both able to work in healthcare and put in a lot of overtime. We got used to all the extra money and didn’t think about how that would change with mat leave and if I didn’t go back to work after mat leave. So here we are, relying on our credit cards to make ends meet each month because we have one less income and everything has gotten so expensive. Is there anything we can do to avoid getting into more trouble when our credit cards run out? ~ Laura

A:

Many Canadians rely on their credit cards to get them through this time of high inflation and economic turmoil. Equifax Canada even has

reported

that there was a balance increase of over six percent between the first and second quarters of this year. Much of this increased credit use comes from consumers using their credit cards to pay for essential living expenses. While using credit can get you through a rough patch, relying on credit can do more harm than good if there’s no definitive end in sight as to when things will improve.

Unfortunately, there’s no quick or easy way to turn your situation around again, but there are things you can do to make it easier while you work towards getting back on track. If you no longer want to rely on loans to make ends meet, the following tips will help you:

Adjust your priorities

When we choose to live a more frugal, simple, or minimalist lifestyle, the way we spend our money changes dramatically. Our focus shifts from spending to finding out

how to spend less

. Instead of following influencers on Instagram who make us feel like our homes are inadequate or what toys our kids need to play with, we follow bloggers who share meal planning tips with what’s already in our pantry and freezer to lower our grocery bills.

For others, it might mean going for a walk with a friend instead of going out to eat. If you’re someone who does a lot of window shopping, in person or online, you can take your kids or your partner to the park for some time instead, or play a board game that you all enjoy.

When we adjust our priorities, we focus on what matters most to us and make our money decisions accordingly. Debt is never high on the list of what we want in life. So don’t be surprised if spending less feels natural.

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Hide your credit cards from yourself

Weaning yourself off our credit cards is easier said than done. Not only do we use them to supplement our paychecks and make ends meet each month, but for many of us they are an integral part of our expenses. They’re stored in every app, we use them online, a quick tap here or click there and the damage adds up quickly.

Go through your credit card statements and determine where you use your credit cards. If you have pre-authorized payments with them each month, log into those accounts and remove the automatic billing information. Do the same with everyone

subscriptions

You may have. Then go through the apps on your phone and delete your credit card details from each one. If you shop online using a laptop or PC, open your browser settings and delete any saved payment information.

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The final step must be to remove the physical cards from your wallet. If you don’t think you can go cold turkey, leave a card in your wallet and tuck the rest away. Only use one card for specific, pre-planned purchases. Be strict with yourself – if it wasn’t on your list before you walked into the store, it’s not okay to pay for it with a credit card.

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Take back control of your income

to

Break the paycheck-to-paycheck cycle

and by supplementing shortfalls with credit, it’s important to regain control of the income you have. Create a realistic budget that will help you keep a close eye on spending only within your means. It can mean making (temporary) lifestyle changes to drastically reduce costs or increase household income. Your plan needs to include some emergency savings so you have some cash to fall back on the next time you’re short.

How to communicate effectively with creditors and collection agencies

If you’re about to max out your credit cards or fall behind on your debts and bills, your creditors will be deciding how to protect themselves should you fail to pay off your debt. If your income is deposited into a bank account at an institution where you also owe money, the lender will withdraw the money from your account and pay back your debt if you miss payments. At the same time, they can reduce your credit limit to limit your debt. This puts you in an extremely difficult position when you need the money for rent or groceries.

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The bottom line is not using debt to make ends meet

Debt will eat up some of your income and the more you owe with your bills and debts, the more they will eat up. The time to regain control of your money is before you hit the max, and the sooner the better. You have more options than waiting until all your creditors have blocked your credit cards and asked collection agencies to repay you. A

non-profit credit counseling center in your area

can help you create a budget and give you confidential information and guidance on next steps and options for managing your debt. So don’t hesitate; better sleep and fewer worries can be on the go.

Related reading:

5 things you need to do to successfully live off an income

4 ways to determine if reward credit cards are right for you

Credit card errors that can ruin your credit score

Scott Hannah is President of the Credit Counseling Society, a non-profit organization. For more information on managing your money or debt, contact Scott by

E-mail

check over

nomoredebts.org

or call 1-888-527-8999.

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