Christopher Liew: How to avoid the silent credit card debt spiral

Personal finance contributor Christopher Liew with advice on how to avoid falling into a credit card debt cycle. (Getty Images / iStockphoto / Alexialex)

Christopher Liew is a CFP®, CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers at Blueprint Financial.

Credit cards can be convenient, and many swipe them every day without ever stopping to think about the consequences. However, if they’re not carefully managed, they can quickly evolve into a financial trap.

With current credit interest rates often hovering around 20 per cent or more, carrying a balance from month to month can make it difficult to catch up. This is how many consumers fall into a debt spiral; using credit for everyday expenses, only making minimum payments, and watching their card balances grow by the month.

By recognizing the warning signs early and building healthy credit habits, you can avoid falling into the cycle and keep your finances under control. Here’s what to watch for and the strategies to stay ahead.

Credit card debt is a growing problem

Canadians’ credit card debt is growing. According to TransUnion, the average credit card balance is $4,681 — a number that’s steadily grown over the past few years. The report also revealed that consumer delinquency rates are continuing to rise, as evidenced by the 1.4 million Canadians who missed a credit card payment in the fourth quarter of 2025.

Most credit cards have variable interest rates ranging between 19 and 24 per cent. At that rate, even a small balance can grow substantially if you’re only making your minimum payment. A $2,000 balance could take years to pay off, with hundreds of dollars going to interest instead of reducing the principal.

Consistently carrying balances can also harm your credit score, making it harder to qualify for loans, mortgages, or even rental applications. Additionally, high debt limits your financial flexibility, leaving you with fewer financing options when real emergencies arise.

How to avoid the credit card debt trap

Credit card companies make very little money from people who use their cards responsibly. They make the majority of their money from late fees and interest charged to consumers who frequently carry their card balances, which is one of the reasons why they try so hard to target university students and young adults who may be struggling to stay afloat.

When you’re barely treading water, sometimes it’s easier to take the short-term help that’s offered and worry about the long-term consequences later.

Here are some tips to help you avoid falling into a debt trap in the first place.

1. Always pay more than the minimum

The minimum payment is designed to keep you trapped in a debt cycle. Credit card companies offer low minimum payments to tempt consumers into overspending with the promise of a small, seemingly affordable payment.

A closer look at the minimum payment, however, will reveal that only a portion of that payment goes to your principal balance. The rest goes toward the monthly interest fees, which is essentially money you’re flushing down the drain every month by carrying a balance.

If you end up in a situation where you have to carry a balance, always try to pay more than the minimum payment. This will help you pay down your principal balance quicker, resulting in less interest fees over time.

2. Track your spending and create a budget

Ultimately, you shouldn’t be using your credit to pay for things that you wouldn’t be able to afford with your debit card, as this will put you over budget. To know how much you can actually afford to spend, though, you first need to have a budget broken down into needs, wants, and allow some money left over for saving and investments.

3. Set up automated payments on your cards

In addition to the ding on your credit score, most cards impose late fees if you miss your scheduled payment date. You can easily avoid this by setting up auto-draft payments through your card’s app.

4. Build an emergency fund

Emergencies happen. If you’re living paycheque to paycheque, using a credit card may be the only way to cover unexpected expenses. This is why it’s important to work emergency savings into your monthly budget, so that you don’t have to resort to a credit card.

An easy way to accomplish this without having to think about it is to set up a savings account alongside your chequing account. Use your bank app to set up an autodraft (either a dollar amount or a percentage) to be transferred from your chequing to your savings every time your paycheque hits your account. Don’t touch this money unless it’s an absolute emergency.

5. Look into lower-interest options

If you’re in over your head in debt, you have a couple of options to help you lower interest payments:

• Transfer your card balance to a lower-interest credit card
• Apply for a debt consolidation loan

Additionally, some credit card companies may offer a temporary break on interest. If you call your card company and explain that you’re going through financial hardship, they may offer to temporarily reduce your interest to give you time to catch up on paying down your principal balance.

Warning signs that you’re falling into a debt spiral

Credit cards can be a great tool to help you build your credit profile, earn cashback rewards, and receive points that can later be used to help fund vacations, purchase holiday gifts, or even cover groceries.

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But if you’re not paying your balance off before the end of each billing cycle, you can end up on a slippery slope. Once the monthly interest fees hit, these will offset the value of any cashback rewards you may have earned, and may even end up costing you more money than you spent.

Some warning signs that you may be falling into a debt cycle:

• You’re only able to make the minimum payment on your card (much of which goes purely to interest fees)
• You find yourself relying solely on credit to afford everyday living expenses
• You’re living above your means and using your card to afford expenses you wouldn’t be able to cover with your bank account balance
• You’re frequently opening new cards to transfer your card balance to a lower-interest card

Know when to seek help

Sometimes, despite your best efforts, credit card debt becomes too difficult to manage alone. Recognizing when to reach out for support can prevent the problem from spiralling further. If you’re missing payments, relying on cash advances, or using one credit card to pay another, these are strong indicators that outside assistance may be needed.

Speaking with a financial or debt advisor can help you come up with a realistic solution to getting out of your debt spiral that fits into your budget. The sooner you take action, the more options you’ll have to regain control of your finances before it’s too late.

More from Christopher Liew:

• How to deal with financial stress if you’re deep in debt
• Smart moves for single seniors who are about to retire
• Why so many young Canadians can’t find jobs
• Are you responsible for your parent’s credit card debt when they die?