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A woman is making an online purchase and is holding her credit card in her hand and entering her credit card number

The Real Cost of Carrying a Balance on a Credit Card

Do you know what it actually costs when you carry a balance on your credit card?
We’ve broken it down and even have a tool to figure out how long it might take you to pay off your balance.


Balance is a good thing… right?

Sometimes because of unexpected costs or not enough planning, you end up carrying a balance on your credit card. But what, exactly, does it cost when you don’t pay your credit cards in full each month?

Let’s start by defining a few important terms when it comes to credit:

Principal – The amount you originally borrowed. Yes, anything you spend on your credit card is borrowed money.

Interest – What your credit card charges you for the privilege of borrowing money. This is usually presented as an annual percentage rate.

Compound Interest – Interest that is added to your principal … which is then charged interest. Interest on your interest is how credit card debt can stack up so quickly.

Minimum Payment – The smallest amount of money you can pay in order to keep your credit card and not damage your credit score.

Credit Score – This is essentially a measure of how good you are at fulfilling your financial commitments. A good credit score can help you buy a house or a car, get a loan, start a business, or even get you better interest rates.

Interest grows your debt

Let’s use an example. Say you’ve got $1,000 on a credit card with a 19% interest rate. That’s not bad, right? $1,000 isn’t that much at all, and 19% is a pretty standard interest rate. So, let’s say you put $20 each month toward paying off that debt, which is an approximate minimum payment. Do you want to know how long it would take to pay that balance off? More than eight years! And what would it cost you? About $997, which is basically doubling your debt load! And that’s with only paying off your principal with no additional borrowing.

With compound interest, every dollar you leave on your credit card ends up costing you more and more. It’s a powerful thing that can be used to your advantage when it comes to saving, but that’s another blog post.

The example above is just that, an example, but you can use our repayment calculator to help you figure out exactly what your debt might cost you.

A credit card can be good

There’s an obvious solution here, right? Just don’t get a credit card!

Well … it’s not quite that simple. In order to build credit, you need to use credit. So, if you hope to own a home one day, or even get a car loan, you’ll have to work to build your credit. The best way to do this is to use your credit card and pay off the entire balance each month.

Some good tips on using credit with care are:

  • Keep your credit limit sensible
  • Use credit cards for recurring payments that are a regular part of your budget
  • Plan for larger purchases
  • Use credit cards to build good credit within your budget, not as a tool to spend more than you earn
  • If you can’t trust yourself with your cards, leave them at home

See how long it’ll take to pay off your credit card balance

Credit is an important part of your financial life, but carrying a balance, or not managing it well can lead to a struggle with debt. Try our repayment calculator and remember that debt is something that can happen to any of us, so never be embarrassed to talk about it.

Did you learn something about credit cards? Are there other questions you still have about them? Let’s talk about it in the comments.

Couple reviewing how debt stacks up against other Canadians

How Does Your Debt Stack Up?

Let’s have a look at debt in Canada.
How much do people owe on average? How does it break down by age group?


Debt

Almost all of us have it, and most of us are worried about it. How does your debt compares with the rest of Canada and Saskatchewan?

What Canadians owe

Let’s start with the big picture. On average, Canadians carry about $22,000 in non-mortgage debt.

That’s everything like credit cards, lines of credit, loans, car payments, and student loans.  Now the bad news – that number spikes to nearly $24,500 in Saskatchewan. That’s like an entire part-time job’s yearly income worth of debt.

To put it another way, according to Statistics Canada, many Canadians owe $1.74 for every $1.00 of disposable income they have.

Canadians have a lot of debt.

Gen X are the most in debt

Good news for Millennials though, it’s Gen X that’s bearing the biggest debt load right now! People aged 35-54 on average have more than $10,000 of consumer debt alone, while those aged 18-34 have way less at about $5,600. People aged 55+ are sitting in the middle with an average consumer debt of around $9,000. And this is all just consumer debt, or the debt that comes from buying stuff, not investing in anything like a home or your education.

One of the major factors in Canadian’s debt is probably pretty familiar to you – income is staying the same or even going down, while costs of just about everything keep rising.

D*bt happens

Whether your debt is at, above, or even below some of these averages, the real takeaway here is that struggling to stay in the black is a Canadian experience. The first step in tackling your debt should be to talk about it. In fact, one of the main reasons that it’s believed Millennial consumer debt is as low as it is right now, is that that generation has been taught to be more debt averse than others to the point that many are delaying or even rejecting home ownership.

Keep an eye out for our upcoming blogs about the real cost of a credit card balance and our top tips for paying off debt.

So, how did you stack up? Does your debt load make you feel stressed, or are you feeling a little better knowing that so many other Canadians are struggling with debt too? Let’s talk about it in the comments.

Girl holding a credit card

Building blocks of credit

Credit isn’t a bad thing if used responsibly and can be a tool that can help your future.


The word credit may be scary or viewed as something negative, but it can be the opposite. Credit isn’t a bad thing if used responsibly and is a tool that can positively help your future. Looking to get a mortgage? How about a loan for a new set of wheels? Building and having a good credit score is essential throughout your life and enables you to borrow money for these life events.

Importance of credit

Building credit is important as it identifies how you manage debt. By paying back the money you borrow with on-time payments, it shows you can responsibly manage debt and sets you up for the future.

A credit score will be given to you based on your credit behaviours. Credit scores range from 300 up to 900 points. When you’re first starting out, you’ll be at the lower end of the range. As you build your credit and display good credit behaviours, this score will increase. A score of 700 or above is considered good while a score of 800 or above is considered excellent. As good behaviours help improve your score, it’s important to note that bad credit behaviours can decrease this score. This score is with you forever, and it’s important you display positive credit behaviours.

You may think playing it safe by avoiding credit all together is the way to go, but in fact, it may be hindering you in the future. Without credit, you can’t show if you can manage debt responsibly which can impact your ability to get a loan, mortgage, etc.

Building credit

Start building credit as soon as possible. Start by applying for a low limit credit card after high school and paying the entire balance monthly. Credit cards are a great credit-building tool and can offer great additional features and benefits above and beyond just helping to build credit. Benefits from credit cards can range from insurance coverage to rewards points and even cash back to help pay your balance!

Good credit behaviours

Remember, good credit means you display positive credit behaviours showing you can responsibly manage debt. You can do this by:

  • Paying your monthly bills (utility, cell phone, etc.) on time each month. Consider setting up automatic payments.
  • Understand your spending and talk to a financial advisor to ensure the credit you have (credit cards, loans, etc.) is manageable and fits within your financial situation.
  • Pay your credit card balance in full each month. Remember your credit card statement ‘due date’ is the date the money is due on the account and payments typically take a few days to process. Make payments at least 2-3 days prior to your due date to account for processing times.
  • Do not apply for multiple loans or credit cards all within a short amount of time. Each time you apply for a loan, mortgage or credit card, the issuer does a hard credit inquiry or ‘a hit’ on your credit score showing that your credit has been checked. Excessive applications could affect your ability to be approved as it may look like you’re a riskier borrower or could be perceived as desperation.

Understanding your credit score and how your behaviours impact this score is important.  You can do a soft inquiry (an inquiry only visible to you and that doesn’t affect your credit score) by using www.transunion.ca. We also recommend speaking to your financial advisor. They’ll work with you to understand your credit and create a plan to help you reach your financial goals.

As you can see, credit doesn’t need to be a bad word. Building and developing good credit behaviours early on, help set you on the right track for life. Contact your financial advisor today to see how credit can be a positive for you.

What questions do you have about building your credit? Ask below and we’ll be sure to answer.