Canadian Credit Card Debt
According to David Trahair, in his recent book Crushing Debt, the average Canadian has approximately $25K in household consumer debt (credit cards and lines of credit).This amount was provided from a TransUnion independent report, and doesn’t even include any mortgage debt. Trahair went on to examine the report in detail, which came to the independent conclusion that most Canadian household debt was likely being carried on lines of credit to pay off credit cards (Crushing Debt, pg.78).But for those without lines of credit, it’s not such a good deal.
The Prime borrowing rate in Canada for a secured LOC (Line of Credit) or RRSP Loan is currently around 4%, but MasterCard is a whopping 19%, and Visa is usually a little lower in the 9% to 15% range (TD Emerald Visa is currently prime + 1.9% to 6.9%). Of course you can negotiate with Visa if you have great credit, but there is a bottom limit to what the credit card company is willing to go on your card. With revolving credit rates between 9% to 19%, and low minimum payments, it’s not surprising most people are not paying off their credit cards. That’s why it’s as important as ever, to get the best credit card that gives you the best deal.
The Perks Aren’t Worth It
The best credit cards don’t always come with perks or travel points. If you include the annual fees, a high interest rate, and the actual dollar amount you pay for the rewards, you likely don’t come out ahead. If you don’t travel extensively, or use your credit card rewards, then a travel card with a high interest rate and annual membership fee isn’t worth it. Reward cards often have annual membership fees (over $100 for gold cards), and if it’s a MasterCard then your likely paying the higher %19 rate. Combining a membership fee with a high interest rate, means you are simply paying too much for your rewards.
The reward points by most credit cards tend to have a ratio of 10 to 40 for each dollar spent. This means you need to spend $10 to $40 for every $1 of rewards. To put this in context, if you were to currently fly from Vancouver to Toronto, the cost of your flight is approximately $684 (taxes included). So with an Air Miles Amex reward card as an example (10:1 ratio), your ticket to Toronto just cost you $6840.00 dollars.
Low Rate Cards Are a Better Deal
If you are the person who does indeed use your travel or gas reward points, and you can pay off your credit card in full every month, then it’s a good deal. You are getting a great kickback on money you are spending anyway. But if you carry any kind of balance, or unable to pay off your credit card every month, then you really should look into the low rate credit cards, such as the TD Emerald Visa. This card currently has a 4.75% purchase rate with only a $25 annual membership fee (prime + 1.9% to 6.9%). While you don’t get the perks, you don’t pay expensive membership fees or the top interest rates either.
Readers, what are your thoughts? Do you like your credit card reward points, or do you prefer the lower rate cards? Canadian readers, what’s the best deal you have negotiated for your credit card rate?