Credit cards are supposed to be about meeting a short term cash need in a time of emergency. I think we all know that is no longer reality, and hasn’t been for some time. A new Hoyes Michalos/Harris Decima poll sheds light on the current state of credit card debt. Here are some of the key findings:
- 38% of Canadians are currently carrying a balance on their credit cards
- Of those currently carrying a balance, almost 50% say they always or often carry a balance
- Of those carrying a balance, 1 in 4 say it will take them more than a year to pay off their outstanding balance
- Of those carrying a balance, 1 in 20 say they will never be able to fully pay off their credit card debt
So how did things get so out of control? There are the usual suspects: easy availability of credit, use of credit in periods of reduced income, temptation to spend, etc. My comments are not about blame. There is plenty of that to go around. I am more concerned about action. I think that one of the biggest factors holding people back is a lack of understanding about the true cost of repaying high interest credit cards. Credit card interest calculators, like this one or this one, can help you determine the cost and time frame for paying your credit cards in full. Following is a simple example. Suppose that you have a balance of $2,000 on one credit card with an interest rate of 18%. The minimum payment on credit card is only $60 monthly. However, if you only make that minimum payment, you will be doing it for almost 14 years and pay nearly $1,800 in interest charges. Phooey you say! Of course you would pay off $2,000 faster and avoid all that interest. Suppose it was $5,000 instead of $2,000. Suppose you have five credit cards instead of one. Suppose the interest rate is 29% instead of 18%. Suppose you get laid off. Suppose your spouse leaves you. I know it sounds a little like a country and western song, but these are real things that happen to real people all the time. Bottom line – having debt brings risk. That is why you should try to pay off your debt as quickly as possible. Take control of the situation before it is impossible to repay your debts in full. If you think you need some help getting your debt under control, we are here to help. For most people, if you can spare 30 minutes of your time, we can review your options for dealing with your debt. Debt free in 30, it’s that simple.