With the current consumer trends, Canadian credit card debt is at an all time high. As national economies face a challenging recovery over the next few months, managing and controlling these rising levels of personal debt has become even more of a necessity.
With the pandemic underway, you may already be avoiding unnecessary spending, while at the same time taking advantage of payment deferrals and extra government support. However, as businesses reopen and payment holidays come to an end, now is a good time to reassess your financial situation, transfer outstanding balances, and pay down existing debt wherever you can. Having a tab on all these factors can help you ensure that both your financial life and credit health are in check.
Dealing With Deferrals
In Canada, almost 450,000 credit card deferral requests have been received by banks over the last few months. Flexible payment options and waived late fees have helped thousands of consumers across North American cope with a reduced household income. Some of these deals are now coming to an end, and as long as your agreement was made officially with your bank, it should have had no impact on your credit health and your credit score. However, it is worth verifying that deferred payments have not been mistakenly reported as missed.
A poor credit score may mean you are denied access to premium credit products, which often have more favorable interest rates. If you don’t know your credit score, you can access it online for free with Canadian startup Borrowell. In the meantime, it’s important to keep up with minimum payments on any bills that haven’t been deferred, as letting them fall behind will affect your score.
Resuming Credit Card Payments
Deferral periods could shortly be drawing to an end on many credit products, mortgages, and insurance policies. When your payment holiday finishes, you may find you are still facing difficulties paying your bills. If this is the case, it’s important to contact your financial provider as soon as possible to inform them of your situation and discuss a possible extension. If you are able to resume your regular credit card payments, you will find you owe more money on your debt.
Having effectively extended your repayment plan, your payments should stay the same as they were before deferral; it will just take you longer to pay off the debt. However, if you have the available means, you can choose to increase the amount you pay to make up for the lack of payments during the deferral period.
There are calls for the government to hand out further economic relief, so if you are managing to cover your basic costs and have a regular income at the moment, it may be worth trying to allocate finances to help settle any outstanding credit card balances. By doing this, you will avoid high-interest rates, lower your credit utilization rate, and improve your credit score.
Transferring Outstanding Balances
With a healthy credit score, you are more likely to qualify for a credit card with 0% financing or introductory rates. If you are paying interest on an outstanding debt on a credit card, transferring the balance to a 0% card can help save you money. Recently, some institutions have cut the length of their 0% APR period, and some have stopped offers altogether. However, cards that typically provide from 6 to 20 months of interest-free finance may still be available. A good credit score will help to secure a balance transfer card, but even with an average score, you may still be accepted, as every card issuer will evaluate your application on an individual basis.
Monitoring Credit Utilization
Even if you are unable to obtain a 0% balance card, holding on to older cards can also be advantageous, since a percentage of your credit score is based on the length of time you have had your account. By regularly using your card and also paying it off consistently, you will avoid building up a large amount of debt, and your credit score will improve. Maxing out your credit card and missing minimum payments can affect your credit utilization ratio – the amount of credit you owe divided by your credit limit. If you keep the ratio under 30%, your creditworthiness in the eyes of lenders will improve.
In an unsettled economic climate, keeping a close eye on your money and minimizing debt is vital. By deferring, transferring, or paying off outstanding balances, your finances will be more secure. In turn, this will improve your credit score, opening the door to better deals on other financial products in the future.