Increase in minimum payment | Good time to start dealing with your credit card

Starting this Monday, the minimum amount payable on credit cards in Quebec will increase to 3.5% of the balance. It has been at 3% for a year and will increase by half a percentage point annually until it reaches 5% in 2025. In the current context, this increase could have significant consequences and possibly for some people who don’t feel at all concerned.

Posted at 6:00 am

Stephanie Berube

Stephanie Berube
The press

It was Quebec that passed this measure in 2017, which has been in place since January 1, 2017ah August 2019. Their goal: avoiding debt. New credit card contracts in Quebec already require a minimum payment of 5%.

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

The fact that it’s increasing at the moment, with all the costs also increasing, that could be the last straw for some people.

Julie Brissette, Budget Advisor at ACEF de l’Est

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

The increase can therefore be difficult for people who are already struggling to manage their card. “It could lead to an increase in people coming to us or consulting a trustee,” said the ACEF de l’Est adviser.

Small increase, big difference

Sophie Désautel, authorized insolvency practitioner at Raymond Chabot, a subsidiary of Raymond Chabot Grant Thornton, agrees that the context is problematic.

“For people who have sufficient income, it will be fine, they will be able to absorb it,” she said. On the other hand, with inflation at 8.1% in June, some average earners could also get caught, estimates Sophie Désautel.

We have to be careful not to think that it’s only 0.5%. She will continue to increase.

Sophie Désautel, licensed insolvency practitioner at Raymond Chabot

Mme Désautel believes that all this often worrying economic news should make people analyze their finances realistically and reevaluate their spending, especially those who have never done so.

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

And above all, be aware that paying only the minimum payment on the credit card will be very expensive.

“You have to estimate the average vacation cost if you put it on the credit card and pay for 48 months,” says the specialist.

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

lack of education

Budget planner Julie Brissette estimates that there is a major lack of education and several myths surrounding the use of credit cards.

People think that paying the minimum balance will keep them in good credit. But they don’t know that they are paying interest.

Julie Brissette, budget planner

Average monthly credit card spend by Quebecers increased 18.5% in the first quarter of 2022 compared to the same period last year, according to a report by Equifax, which also calculates that the number of new cards is growing.

“Our data tells us that credit card spending has been unusually high,” said Rebecca Oakes, vice president, advanced analytics, Equifax Canada. This is partly due 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 some credit card purchases are spent on essential purchases like groceries or gas because consumers have no other choice. This behavior is very concerning,” says oak trees

What changes from 3% to 3.5%?

With a balance of $3,000 (interest rate of 19.9%), someone making only the 3% minimum payment will take 17 years and 8 months to fully pay off their balance and pay $3,452 in interest. At 3.5%, it’s closer to $2,549 in interest paid out by paying just the minimum each month. And at 5%, the interest charges paid drop to $1435 under the same conditions.

Stephanie Berube, The press

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