Minimum payment increase | Good time to be prudent with your credit card

As of this Monday, the minimum to pay on credit cards in Quebec increases to 3.5% of the balance. It has been 3% for a year and will increase by half a percentage point per year, until it reaches 5% in 2025. In the current context, this increase could have important consequences, and it may be for some people who do not feel worried at all.

Posted at 6:00 am

Stephanie Berube

Stephanie Berube

It was Quebec that adopted this measure in 2017, which has been in force since 1Ahem August 2019. Its objective: to prevent indebtedness. New credit card contracts already require a minimum payment of 5% in Quebec.

Although she believes it is a good measure and that the target is relevant, Julie Brissette, budget adviser at the Associationcooperative d’économie familial (ACEF) de l’Est, says it could have adverse effects in the current circumstances.

The fact of increasing, at the moment, with all the costs also increasing, that could be the straw that breaks the camel’s back for some people.

Julie Brissette, budget advisor to ACEF de l’Est

For example, the budget coach explains, a couple with a $30,000 credit card balance now has to pay $150 more per month just to meet the minimum payment. Let’s imagine this couple has a variable rate on their mortgage, let’s add inflation to that. It can make a difference, warns Julie Brissette.

Therefore, the increase may be difficult to absorb for people who already have problems with managing their card. “It could give rise to an increase in the number of people who come to consult us or who go to consult a trustee”, points out the director of the ACEF de l’Est.

Small increase, big difference

The context is certainly problematic, so believes Sophie Désautel, a licensed insolvency trustee at Raymond Chabot, a subsidiary of Raymond Chabot Grant Thornton.

“For people who have enough income, it will be fine, they will be able to absorb it,” he said. On the other hand, with inflation of 8.1% in June, some people with average incomes could be trapped, estimates Sophie Désautel.

You have to be careful not to think that it is only 0.5%. It will continue to increase.

Sophie Désautel, Licensed Insolvency Trustee at Raymond Chabot

METERme Désautel believes that all this often worrying economic news should push people to take a realistic look at their finances and reevaluate their spending, especially those who have never done so.

“You have to choose between needs and wants,” she says.

And above all, keep in mind that paying only the minimum payment on your credit card is very expensive.

“You have to estimate the average cost of vacations if you put them on your credit card and pay them over 48 months,” says this specialist.

To do this, several very simple tools are available online that allow you to calculate the interest on a credit card balance, based on the monthly amounts paid if the balance is not paid in full when due.

Lack of education

There is a huge lack of education and many myths surrounding credit card use, says budget planner Julie Brissette.

People think that by paying the minimum balance, they maintain good credit. But they don’t realize how much they are paying in interest.

Julie Brissette, Budget Planner

The monthly monthly payments for the Quebec credit card increased by 18.5% in the first quarter of 2022 for the same period, according to a report by the firm Equifax, which also calculates that the name of new cards is growing.

“What our data shows us is that credit card spending has been abnormally high,” said Rebecca Oakes, vice president of advanced analytics at Equifax Canada. This is due in part to the resumption of activities such as travel, she explains.

“However, we have a situation where inflation is currently very high. This could mean that a portion of credit card purchases is spent on essential purchases, like groceries or gasoline, because consumers don’t get there any other way. This behavior is very concerning,” says Oakes.

From 3% to 3.5%, what changes?

On a $3,000 balance (19.9% ​​interest rate), it takes someone who only makes the 3% minimum payment 17 years and 8 months to fully pay off their balance and pays $3,452 in interest. At 3.5%, it’s more like $2,549 to be paid in interest, paying only the minimum each month. And at 5%, the interest charges paid drop to $1,435, all else being equal.

Stephanie Berube, Press

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