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The debt trap of credit card minimum payments...

10 January 2020


The debt trap of credit card minimum payments

At this point, I’m sure most people believe they fully understand how a credit card works. For those who don’t, a credit card acts as a line of credit up to a set amount, or limit. Purchases made with a credit card are usually subject to a certain interest rate and the cardholder is only obligated to pay 2% of their credit card balance off, per month. Sounds easy enough, right?

The fact is that credit cards are designed to keep you perpetually in debt. The temptation to pay only the minimum required amount makes it easy to keep up with payments and feel like you’re on top of things. But this is the type of thinking that costs you more than you might be aware of.

The average Canadian carries a credit card balance of close to $8,600. Now, let’s say the average Canadian also pays the minimum monthly payment of 2% every month on a balance of $8,600. At an interest rate of 19.9%, paying the monthly amount of 2%, it would take you 9 years to pay off the balance, and cost you almost $10,000 in interest charges on top of your initial purchase amount! Also, if your credit card has an annual fee just for using it, you could be looking at an even more costly balance to pay off. Don’t believe me? Do the math yourself using this credit card debt calculator.

A transparent alternative to credit cards

There are far more cost-effective and transparent ways to finance purchases, big and small. One such alternative is choosing to go with a fixed-term loan.

A fixed term loan offers you a set period of time to pay off your balance with preauthorized instalment payments. You can choose between various payment terms from a matter of months, up to 10 years. You and the finance company agree upon a timeframe and interest rate, then calculate your monthly payments over that set period of time.

For the sake of argument, let’s say you’re financing a used car with a total cost of $8,600. A fixed-term loan of 5 years at the same 19.9% interest rate as applied to the credit card, would take you nearly half as long to pay off, while cutting your cost of borrowing in half!

Fixed-term loans are a great way to finance small or large purchases, while making a series of equal instalment payments over a fixed period of time; and provides a clearer path and timeframe for repayment than credit cards do. Fixed-term loans allow you to efficiently pay off your debt, versus continuing to carry a balance year after year, that ends up costing you more in the long run.

LendCare offers fixed-term loans through our over 6000 partners across the country and offer far less credit-based restrictions than most banks and credit card providers. If you’re looking for a superior way to finance a vehicle, home improvement costs, retail purchases or healthcare services, LendCare has you covered.

COVID-19 Updates

COVID-19 Updates

With recent developments to the COVID-19 mandates and the lockdown issued by the Government of Ontario and Quebec, effective Dec 26th, we wanted to let you know that we are still here to service our partners' needs.

While we are all impacted during this COVID-19 pandemic, we are maintaining a solid support system for your business needs. At LendCare, we make it our priority to ensure that we continue to provide your business and our customers with the care they deserve.

We are committed to providing you with the same level of service that you have become accustomed to, so that the financing process is as seamless as possible. We continue to operate at full capacity and would like to reassure you that we are continuing to process applications and issue payments. We are still fully capable of processing and authorizing loan agreements. 

Feel free to contact us by email, phone or through our online contact form should you require any assistance. We will keep you updated on any changes that affect our business operations. If you have any questions or concerns, please reach out to us as you would normally, and we will be happy to respond to you.