It comes every month without fail – that lovely statement showing just how much you’ve spent on your credit card.
Depending on how big-ticket that spending is, or your financial situation in general, you may only be able to swing that minimum payment.
Paying the bare minimum every once in a while isn’t all that awful, but if it becomes your regular payment routine, there’s a problem according to the Credit Counselling Society.
“The trap is you can make the minimum payment for a while, but then balances go up and then all you can make is the minimum and you’re stuck for a long period of time,” Credit Counselling Society of B.C. president Scott Hannah said.
A recent study showed 40 per cent of Canadians don’t understand why it’s important to pay more than the minimum.
“This is scary when four out of 10 people don’t understand the impact,” Hannah said.
So what is the impact? If you’re only paying your minimum balance, most of that money is being sucked away for interest, not actually decreasing your debt load.
“The fact that if you have a $5,000 credit card and you’re making the minimum payment at 4 per cent or 15 per cent minimum, it could take you over 11 years to pay off that credit card and you would incur about $4,000 in interest – that’s the point consumers aren’t getting,” Hannah said.
According to Hannah, right now people are being lured into spending more because of low interest rates on things like homes and vehicles, meaning Canadian’s think they have more in their pocket to spend.
And he said people are saving significantly less than they were in the 90s, meaning an unexpected life event could easily send someone spiraling into debt.
The best advice – is pretty easy, try to live within your means and have a budget. Hannah also suggests getting on top of debt as early as possible. The sooner you can tackle it, the easier it is to pay back.