1. Paying your bill late
Canadian credit card issuers are becoming increasingly less lenient with late payers. When you pay your credit card bill late, you will be charged interest. Rates vary depending on the credit card issuer and type of transactions.
For instance, if you’re 30 days late on your TD credit card, they will increase your interest rate by 5 percentage points i.e. from 19.99% to 24.99% and you will lose any promotional interest rate (introductory balance transfer or purchase rate) you may have had i.e. from 0% to 24.99%.
President’s Choice Financial reserves the right to increase your interest rate 5 percentage points after reviewing your credit card account or credit history for any reason whatsoever. If you’re late on a car loan payment with another company, PC Financial can increase your credit card interest rate.
2. Only paying the minimum amount
In most of Canada, the minimum payment is either $10 or a percentage of your balance, typically between 2% and 3% — whichever is higher, plus the interest owed. While you may be thanking your bank in the short term for the convenience of only having to pay potentially $10 of your balance, the truth is the bank is setting you up to be on a debt treadmill.
If you have a $2,000 balance, a $10 monthly minimum payment plus interest will take you over 16.5 years to pay down. The lesson? Always pay more than the minimum and try to pay off your credit card debt as fast as you can. If you need some breathing room get a balance transfer credit card that offers a 0% rate for 10 months.
3. Ignoring the fine print of balance transfers
With juicy 0% interest offers for as long as 12 months, you might be enticed to get a balance transfer credit card. Just remember, the interest rate only applies to the balances that you transferred from your other credit cards to your balance transfer card (which are great when used properly). Any new purchases you make with your balance transfer card will have the normal interest rate applied to it, even during the introductory period.
So, don’t go spending thousands of dollars thinking you have no interest to pay over the next 12 months, as the 0% balance transfer offer only applies to your existing credit card debt, not anything new.
4. Going over your credit limit
Most of us think that our credit limit is, in fact, our spending limit. Common sense would be on your side, but reality is not. Many Canadian credit card issuers will allow you to go over your credit limit without your required consent, but will then charge you up to $45 for an over-limit fee.
So that pack of gum you bought in the store for $2.50 that brought you $1 over your credit limit, may have been a lot more expensive than advertised.
5. Racking up interest charges from cash advances
Credit card cash advances can be very convenient ways of accessing cash. However, just remember there is no interest free grace period with cash advances.
Most will start charging interest from the moment the advance is completed at a rate often times more than your standard purchase interest rate. In addition, your bank will also likely charge you a fee the greater of $5 or 1% to access cash from your credit card, making it a truly expensive way of getting cash, and problematic if you forgot about the interest charges.
Make the most of your credit card by using it right
So, while credit card rewards, 0% balance transfers and low rate cards are all great opportunities for the savvy and responsible credit card user, used improperly and credit cards can inflict a frightening sting.
That’s why we continue to recommend the Golden Rule of credit card use: set-up an automatic bill pay from your bank to your credit card that auto pays the entire monthly balance, that way you’re never late and will never pay interest.
