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March 4th, 2009 admin

Credit Card Debt in Canada – Find out the Truth About How Much You’re Paying by Michael Goldenberg, President, DebtCare Canada

Credit card debt in Canada is forever on the rise. Those applying for credit cards don’t even realize what they are getting themselves into, until it is too late. Canadian banks have made it really easy for the average person to not only be approved, but also to make them feel like they can afford to repay them on a monthly basis.

This can get tricky. The manner in which you manage your credit card, the interest rate and the repayment terms, will determine whether or not you are going to have credit problems in the future.

Credit card interest rates can range from prime (in the case of lines of credit) all the way up to 29% interest (in the case of store cards). You can usually estimate what type of interest rate you will be looking at depending on the grantor. Department store cards like Sears, The Bay, Best Buy, etc.. generally offer higher interest rates (25%-30%), while Visa cards and MasterCards are usually between 16%-25% and lines of credit are generally less than 16%. Make no mistake; this kind of interest can quickly land you in a situation where you have more credit card debt than you can afford.

The minimum monthly payments are usually estimated at 1%-3% of your balance. The result is that people use their cards based on being able to manage their minimum payments, however these minimum payments will often only cover interest.

Here is an example. If you obtain a department store card at 27% interest and then spend $2,000 on appliances, your minimum monthly payment, at 3% of your balance, would be $60 per/month. Now let’s take a look at the interest. Credit card interest almost always compounds monthly (12 times per/year). To calculate interest, take the annual interest rate and divide it by 12. In our example, take 27% divide it by 12 and you will get 2.25%. Take the balance of $2,000 and multiple that by 2.25%. The monthly interest would be $45, which means that if you were only making minimum payments, 75% of your monthly payment would be going to interest!

A simple rule of thumb to remember when using credit cards is to not borrow more than you can afford to pay in full at the end of the month.

Many folks who don’t follow this rule of thumb often find themselves in a situation where they have multiple credit cards, stretched to their limits, and when minimum payments collectively become unmanageable, a financial debt crisis can ensue.

About the Author

Our mission at DebtCare Canada is to inform the public about the federal government debt programs which have been introduced to help anyone experiencing debt problems. We have provided debt assistance to businesses and individuals and are confident we can help you. http://www.debtcare.ca 1-888-890-0888

Appliance Repair, La Canada, CA, 818-578-2897