Your Personal Finances

Credit/Debt

Canadians are credit card crazy. According to a survey by Credit Canada, 43% of Canadians have three or more credit cards, but 28% of Canadians do not know the interest rate on their credit cards.

Meanwhile the survey shows that 40% of Canadians do not pay their credit card off in full each month while 37% only pay the minimum required each month. And a whopping 30% of Canadians carry a total balance on their credit card each month that is greater than $1,000.

Credit cards are a convenient way of making purchases, but they can be very costly if you do not use them properly and pay off your balances by the due date. Interest charges are high and add up quickly.

Here are a few things you should know about credit cards:

1. There is an interest-free period if you pay off your purchases by the due date. According to the Financial Consumer Agency of Canada (www.fcac-acfc.gc.ca) credit card issuers use one of two methods to decide whether the interest-free period applies to your new purchases:
   • Method 1: With this method, the interest-free period applies to your new purchases only if you pay your current month's balance in full, by the due date.
   • Method 2: With this method, the interest-free period applies to your new purchases only if you pay your current month's balance in full, by the due date, and you have also paid your previous month's balance in full, by the due date (in other words, you're not carrying a balance from the previous month).
   
   
2. If you don't pay the amount owing on your credit card in full by the due date, your credit card issuer will charge you interest depending on the type of transaction. If you have not paid off a purchase from a previous month, you are typically charged interest from the date you made these purchases until they are paid off in full. You are charged interest from the date you made any cash advance or balance transfer from another card. There is no interest free period for these types of transactions.
   
   
3. If you miss a payment or carry a balance, when a payment is made, the credit card issuer will apply your payment in a certain order. Usually payments are applied to balance transfers first, cash advances second and purchases third.

If you find yourself drowning in credit card debt be sure to contact your local not-for-profit Credit Counselling Agency or Credit Canada at www.creditcanada.com. Their counselors can help you negotiate interest rate relief and consolidate your loans.

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