Credit cards: paying to pay faster

The new provisions of the Consumer Protection Act, which will come into effect on August 1, will allow credit card holders to save more in the long run, said Isabelle Chicoine.
The budget advisor of the Montérégie-Est Association of Home Economics Cooperatives (ACEF) is pleased to see the increase in the minimum balance to be repaid each month. As of next month, credit card holders will have to repay their balance more quickly, at the rate of 2% of the amount due monthly. As of August 2020, the floor will increase by half a percentage point every year for five years. In the end, it will be necessary to repay at least 5% of its debt every month, said the Office of Consumer Protection (CPO) Wednesday.

“It’s good for the consumer,” says Ms. Chicoine. He will save a lot of credit fees and save time. In the long run, it can make a big difference. ”

Indeed, according to calculations simulated by the OPC, a $ 1,000 credit card balance at an interest rate of 19.9% ​​would cost $ 3001.40 in credit charges to the consumer who would reimburse 2% of this amount. debt, over a period of nearly 26 years. If the same consumer paid 5% of their debt each month, a little more than double, their loan would be repaid in six years and it would cost only $ 442.87 in interest. And, of course, if you pay your debt in one installment, the credit will have been at zero cost to the consumer.

Moreover, the parastatal has made its calculation tool available to the public to compare the actual cost of their loans by the amount paid each month and the period required to pay its due.

Holders of certain credit cards are already subject to such repayment terms, which are now applicable to all cards. Those that will be issued in the future will have to be repaid at the rate of 5% of the balance each month, says Ms. Chicoine.

Take charge of your finances

Most of the people who come to ACEF Montérégie-Est’s offices are facing a debt problem, notes Isabelle Chicoine.

Access to credit can make their situation worse if tight debt management is not done. “As long as people pay only the minimum amount, they remain in debt because they do not get rid of the debt,” she says. If they are not able to repay more than this minimum payment, they are at risk of over-indebtedness, if they are not already there. And unless there is a miracle solution or a quick rise in income, their situation will not change. ”

To limit the risks of indebtedness, ACEF recommends to have in its possession only one credit card and to use it only when an unforeseen event occurs. “Technically, the best way to use your credit card is to pay your entire monthly balance,” says the budget advisor.

In this sense, the new provisions of the law will force some consumers to take better control of their finances, she believes. “It’s a bit like the municipalities that set up recycling and composting programs: some people will not adopt the habit of themselves, so we have to put in place mandatory measures to make sure they comply.” , illustrates Ms. Chicoine.

It recalls that ACEF Montérégie-Est offers budget consultation services and advice on personal financial management. Stakeholders can also act on issues related to the protection of consumer rights.

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