Purchasing goods and services is easier than ever thanks to credit cards, but have you ever stopped to really think about where your money is going? Consider this: If everyone paid off their credit card bills on time and in full, credit card companies would make little or no money. They’re benefitting -- and, quite frankly, thriving enormously -- off of the financial woes of Canadians like you. Truth be told, they want you to miss payments and carry an outstanding balance because it puts money in their wallets. Let’s look at some of the ways your credit card might be hurting your wallet more than you realize:
Credit card debt by the numbers
Check out this interesting (and quite frankly, alarming) debt chart from the Financial Post -- it demonstrates how carrying a balance on your credit card can really add up over time. By only paying the minimum balance on your card, you can wind up paying tens or even hundreds of thousands of dollars in interest over time, all without even putting a dent in the original debt.
"Until they have accumulated a level of debt that makes it difficult just to keep up with their minimum monthly payments, many people don’t realize how long it will take them to get out of debt without taking control of their situation," Scott Hannah, President and CEO of the Credit Counselling Society told us.
Debt is a hard cycle to break
According to the Financial Post, nearly half of Canadians who report credit card debt admitted in a survey that they always have an outstanding balance on their account, and one in 20 polled said that they would never be able to pay off their debt. Although credit cards can’t take all the blame for an individual living outside his or her means, the fact remains that it’s extremely hard to pay off a debt in full when you’re paying exorbitant amounts -- up to 25 per cent -- of interest fees.
Paying off debt is hard work
Anyone who’s paid off a large debt will understand: buckling down and taking control of your finances is no easy task. It requires careful planning and significant sacrifice to transition from a comfortable lifestyle to a stingy one. "Debt takes a big bite out of paycheques, while it’s easy to borrow and spend $10,000 or more, it’s not easy to pay off," says Hannah.
The bank always has a new offer for you
Regardless of how deep in debt you are, your credit card company is usually always willing to extend your credit limit and give you a few extra thousand dollars of their money to play with. Why would they do this? Because credit companies stand to make even more money if you can’t pay them back immediately. The offer of more money is irresistible to people who are struggling to make ends meet, but it just leads to even more financial trouble to deal with down the line. "Sadly, we are evolving to a nation that values immediate gratification instead of delayed gratification; with easy access to credit, you don’t have to wait to get the things you want today," says Hannah.
Maxing out your credit limit is just too easy
It’s a proven fact that people spend more when they pay with their credit card than they do when paying with cash or debit. Handing over a stack of your hard-earned money is uncomfortable, but swiping that fancy new piece of plastic through a machine and not having to deal with the consequences makes it far too easy to feel good about a frivolous and unnecessary purchase.
It’s hard to save money when you’re living on credit
When you’re paying interest as high as 25 per cent on your credit card debt, you’re pouring a good chunk of your head-earned cash into the pockets of bank and credit card executives. That money isn’t going into your own savings account or RRSP, and it’s likely you won’t be able to properly save for a rainy day until you can pay off your debts and start contributing to your own future.
"Low rates of interest on savings accounts do not motivate consumers to save for unexpected emergencies and we have come to rely on credit for our life line during emergencies instead of savings," says Hannah.