Carrying Balances in 2020 – the Credit Card Conversation

January 21, 2020
carrying balances

Quit carrying balances and gain control of your debt

Did you know Canadians spent more than 550-billion dollars using credit cards in 2018 and in late 2019 the outstanding balances exceeded 100-billion for the first time?

Although it might not seem like a huge number, almost 30 percent of consumers aren’t able to pay off their credit card balances in full each month. Carrying balances costs Canadians nearly a billion dollars in interest charges per year.

 

How debt grows

Every time you use your credit card to make any purchase your balance increases. Incidentally, purchases aren’t the only way that our credit card balance increases. Activities like cash advances, bank transfers, and interest charges can also cause the balance to increase. Carrying a balance means you pay less than the total bill, causing interest fees to accumulate.

 

Convenience can be complicated…

Most of us use a credit card to manage our finances. Credit cards are convenient, help build a credit score and help earn us points or cash back. But that convenience of using plastic to pay is a slippery slope.  Sometimes it’s hard to know when to stop relying on credit cards to repay debts. Many of us tend to abuse this privilege and things can get out of hand really fast. 

Debt usage ratios are an important factor in determining our credit score. If our debt exceeds 30 percent of the available credit, our credit score will be negatively affected. As you approach your credit limit credit reporting agencies, like Equifax and TransUnion, might believe that you are more and more dependent on credit. 

Debt also spills over into the rest of our financial life. Emergencies may become more expensive because building an emergency fund is hard when extra cash goes to credit card payments. Bad debt can affect your ability to save for retirement, reduce the amount you pay on principal balances, and can prevent you from being able to do things you could otherwise afford, like vacations and holidays.

 

Debt isn’t always a bad thing. 

Whether moderate or an excessive amount, almost all of us have some amount of credit card debt. But this isn’t the end of the world, because once the problem is identified, it’s much easier to work towards solving it. The next part is knowing how and when to pay it off. Through this process, you can be in complete control of our finances once again.

Debt consolidation might be an option

One good way to get a handle on debt is to look into debt consolidation. If your monthly payments – not counting mortgage or rent – are higher than 20 percent of your net income, then it is a sign that you could be in financial trouble. 

You may be a good fit for a debt consolidation loan. Debt consolidation loans involve combining several high-interest loans or debts into a single debt that has a lower overall interest rate. It simplifies our lives by combining multiple bills into one single, lower monthly payment. This allows you to contribute more to the principal balance and become debt-free sooner.

Where do I start?

Financial professionals can help you find the best way to handle your money and reduce or eliminate debt. If you are considering refinancing your existing mortgage to consolidate debts a mortgage broker is the right person to talk to. 

A mortgage broker is a professional who can assess your finances and provides tools and solutions to help get on top of your debt. They can help determine if you qualify for debt consolidation depending on the equity you have in your home and other factors. 

Many people choose to go with this option as mortgage interest rates are usually much lower than other loan interest rates. Your mortgage can also be paid off over multiple years. This means you can arrange much lower monthly payments than another type of loan would offer. By rolling higher-interest debt into your mortgage, it is possible to have more money to pay off the mortgage faster while still having a low monthly payment.

At the end of the day, every financial decision has its benefits and risks. You have to do your due diligence and educate ourselves before making any investments that can impact your overall long-term financial health. Speaking to a mortgage professional is a great place to start!

 

Our team at Tridac Mortgage really likes to talk about mortgages, and we’re here to help you every step of the way.

 

You can book a 30-minute call directly into my calendar here, get in touch with me here, or call me at 416.732.8020!

Profile

Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too.He’s a second generation mortgage broker.Following in his father’s steps he joined the family mortgage business straight out of university.

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