It’s that time of year when consumers pay off their holiday purchases made with their credit cards. Many struggle to get there.
Because one in two Canadians do not repay their balance in full when due and 46% defer it for at least two consecutive months, according to the Bank of Canada. At 19% or 21% interest, it’s very expensive.
So, if you only pay the minimum required (4.5%) on a balance of $1000 at 19.9%, it will take you 7 years to repay it completely and you will have incurred $511 in interest, remember the Consumer Protection Office.
This situation can be avoided by tightening your belt very hard and only using the debit card until the debt is cleared. But one in three Quebecers lives from paycheck to paycheck, according to the Canadian Payroll Association…
You can negotiate a personal or mortgage line of credit. This will push your problem forward, but interest will be greatly reduced. However, your banker could refuse to grant it to you if your credit rating is affected… by your debt.
Change card
You can transfer your balance to a lower rate credit card…and say goodbye to rewards. Because the most generous cards in this regard display the highest rates.
-Another strategy could be more profitable. “You can transfer a balance to a new card with a zero or reduced rate welcome offer (5% for example), generally for 6 to 12 months. But you should never miss a payment, because a default rate applies to several cards,” explains Marie-Ève Leclerc, director, web content at Milesopedia.
Some issuers, however, charge a balance transfer fee, typically between 1% and 3% of the total amount transferred. Milesopedia published a . The best are: CIBC Select Visa, Scotia Minima Visa, BMO Mastercard at preferential rate and Scotia Momentum Visa with no annual fee. Please note: some cards impose a cap on the amounts.
This way, you benefit from the rewards programs and insurance of the credit card (which the debit card does not offer). You can choose a card that is generous with cash back ( ), and improve your financial flexibility accordingly.
Finally, the formula allows you to organize a repayment plan. For example, for a debt of $6,000, you repay $500 each month if you take advantage of a 0% interest offer over 12 months.
Advice
- Read the welcome offer carefully before opting for a card. Do not apply for new cards multiple times to avoid further affecting your credit score.
- Destroy your old card once the balance has been transferred (because the temptation will be great to spend… and go into more debt).
- To avoid delays or ensure that your balance is reduced to zero, financial institutions offer automatic payments on their in-house credit cards.
- If you are having difficulty making ends meet, consult: its valuable advice is free!
