Canadians are now using fewer credit cards, yet, credit card debt continues to increase. A survey conducted by TransUnion, the credit agency, revealed some interesting results. Canadians are racking up more credit card debt even though the number of active credit cards have decreased by 800,000.
Fewer Canadians are opening-up new credit cards and, instead, increasing the limit on the cards they have. But, why would Canadians want to increase the credit limit on the cards the already own?
One explanation is that Canadians are known to the biggest users of loyalty programs around the world. Canadian credit card users focus more on the rewards from the loyalty programs as opposed to their high interest payments.
A National Post article mentions that lenders care more about loyalty programs as opposed to reducing interest rates. Credit card limits were increased by 3 percent in 2016. Canadians need to realize that reward points from a loyalty programs will not solve your credit card debt problem.
The Truth About Minimum Payments
A common perception among credit card users is that you can get out of debt by only making your minimum payments. TransUnion did another survey that involved 1,010 Canadian consumers. This revealed that 39 percent of those Canadians did not understand the benefits with making payments larger then the minimum amount.
Have you ever wondered how long it would take to pay off your credit card debt with only the minimum payments? Monthly statements in Canada now provide the length of time it would take to pay off your balance with only the minimum payments. Keeping in mind that you’re not adding to the outstanding balance.
A Global News article gives an example of the amount of time it would take to pay an outstanding balance with just minimum payments. If you have a $5,000 credit card and the minimum payment is 4 to 15 percent, it could take over 11 years to pay off that credit card debt. By only making the minimum payments, you are also paying off the additional $4,000 in interest.
When it comes to credit card debt, it is better to take care of the problem sooner then later. If you ever find that your debt is overwhelming, you should seek out professional advice.
We are Licensed Insolvency Trustees with the knowledge and experience in addressing the financial issues mentioned above. Our expertise can address any financial challenges you may face, including managing credit and most importantly finding a way to reduce or eliminate overwhelming debt.
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