Illustration by Melanie Lambrick
Tapping a little plastic card to buy your groceries or your gas seems like the simplest thing in the world. But if it’s a credit card, you’re actually doing more than just making a purchase, says Barry Choi, personal finance expert and blogger Money We Have. “Really, it’s a loan from the credit provider.” And those little loans add up all month until it’s time to pay your credit card debt.
“If you pay off your full balance, which you always should, it’s usually interest-free for the first 21 days – the grace period following the end of the billing cycle,” Mr. Choi says. Do this, always, and you’re borrowing money for free.
“Free” money and convenience have made credit cards massively popular. In fact, there are more than 76 million Visas and Mastercards circulating in Canada, though the population is less than 40 million. About 90 per cent of Canadian households report having at least one credit card and the average individual has two. And according to the Bank of Canada, most people are pretty responsible with them: It reports that 70 per cent of Canadians pay off their full balance every month.
Don’t get too smug, however. In February, 2022, Statistics Canada reported that Canadian households held about $80-billion in credit card liabilities – up almost 9 per cent from the previous year. It’s these debts where the problem can begin: If and when credit card users don’t pay the full balance and decide instead…
