Canada Debt and The Real Expense of Credit in Canada

Posted by: Krista McDonald on 11/15/2011

Credit in Canada can be a beneficial tool for helping you purchase expensive items you may not be able to purchase on your own, such as a home, vehicle, or university education. However, the use of credit does not come without a cost. 

Credit card fees

Most people think the expense of credit comes from the interest rates. While this is a large factor in the amount of money you will pay for your credit, the expense of credit in Canada can be broken down into a number of fees and costs. When you have a credit card, you can expect to pay some or all of the following fees:

• Annual fee. Some credit card companies charge an annual fee, which is basically the charge for having the card. This is most common with cards that offer rewards.
  

• Annual percentage rate. Also called the APR, this is the interest rate you pay for your line of credit and is the biggest factor in determining the expense of your credit or loan. As a general rule, the higher the APR, the more money you will pay over the life of the loan or line of credit. For example, if you have a credit card with a $5,000 balance at a 15% interest rate, you will have paid a total of $7,180 during the time it took you to pay the balance in full. If you have the same balance at a 25% interest rate, you will have paid $10,187 over the life of the loan.

• Late payment fee. If you make a credit card payment even one day after the due date, you can expect to pay a late payment fee. This can be up to $35 or $40, depending on your card, and is charged to your balance. If you are close to your limit, this fee can push you over your credit limit, incurring additional fees.

• Over limit fee. All cards have credit fees. If you charge over your limit, you will also be charged a fee for each month you are over your limit.

• Balance transfer fee. Many cards offer incentives such as lower interest rates for transferring your balance to their card. However, many cards will charge a balance transfer fee.

• Cash advance fee. A number of credit cards offer cash advances against your line of credit. If you take advantage of this, you can expect to pay a fee for it.

 

Avoiding credit card fees

Credit card fees can put you in financial trouble if you’re not careful; in fact, many Canada bankruptcy cases can be traced back to too much debt. You can avoid costly credit card fees by shopping for cards that don’t charge fees, making sure to always pay your bill on time, and paying off your balance in full each month if possible. If you are working on reducing debt, make sure to pay more than the minimum amount. This will mean less interest paid and a quicker off period.