Sunday, January 17, 2010

$170 Billion Charged to Visa and MasterCard

Once upon a time, there was the Chargex card. Some received it from their bank but most Canadians lived without it. Today, more than 40 years after Canada's first charge card, there are more than 74 million credit cards in circulation, roughly 3.1 cards for every Canadian over age 18. The last available statistics indicate that Canadians charge more than $170 billion to Visa and MasterCard.

Studies show that the average person spends 112 percent more on a credit card as opposed to cash payments. In real terms, this means that Canadians are living well beyond their means. Many are juggling several credit cards and paying minimum monthly payments as low as 2 per cent of the balance, rather than paying the entire balance. In fact, more than 50 per cent of credit card holders opt for not paying the balance. Putting this into perspective, if your balance was $5,000 at 18 per cent interest, and you opt to pay only the minimum monthly, it would take almost 30 years to pay the balance, assuming you did not add to it.

Part of the problem is that credit cards are a basic necessity of today's society. Some cards also provide benefits that can be quite worthwhile. The trick is to be in control.

There is no reason to carry a different credit card for each store and each bank. One all-purpose card should suffice for virtually every need. (It is wise, though, to have separate cards for personal and business expenses). Check the interest rates as they vary greatly from card to card. Avoid temptation! Use the card for what you need, not what you want! Using a credit card as opposed to not carrying cash makes sense. Using it instead of cash that you don't have can lead to problems.

If credit card debt starts taking over your existence, don't be afraid to seek help from a credit counselor before it's too late.

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