Posted on 08/28
Analysis by investment site Invezz released last week does not provide a good economic report for Canada, which ranks first among the OECD’s most indebted countries overall.
According to calculations by Invezz, Canadians are the largest credit card holders at 82.74%, well ahead of Japan and Switzerland. That means less than one in five adults in Canada doesn’t have a credit card.
To see more clearly, we consulted Jean-Maximilien Voisine, founding president of Milesopedia, a website that offers credit card services and advice on how to choose and use them, and Youcef Ghellache, co-founder and director of educfinance, a personal finance education service launching its this week brand new platform.
Why are Canadians champions in this regard?
“You have to be careful with this comparison,” warns Jean-Maximilien Voisine.
Because the OECD countries do not all have the same credit culture. Canada can be compared to Japan or the United States, but more difficult to compare to European countries. “Europe has a very different credit system,” explains Jean-Maximilien Voisine. In France, for example, we talk more about bank cards and therefore not credit. »
And why are Europeans less addicted to credit cards than we are?
Quite simply because banks are less keen on promoting it because exchange rates are lower, explains Jean-Maximilien Voisine. This rate, which financial institutions charge merchants for each transaction, is capped at 0.5% in Europe, while it’s around 1.5% in Canada.
How many credit cards should we have?
“For mere mortals, two,” replies Youcef Ghellache, with good credit limits and different issuers to deal with an urgent situation. Managing the credit card shouldn’t make managing personal finances more difficult, he says, because in such situations you can forget to pay a balance and interest will accrue.
Jean-Maximilien Voisine believes that you can have three or four cards to juggle the advantages of each and get the most out of them. “There is no better card,” he said. We must make our choices according to our needs and our behavior. »
We can therefore have one card for grocery shopping and another that offers travel insurance, airport lounge access or currency conversion fees, believes Milesopedia’s founder.
The first question to ask is: Can I pay my balances? If the answer is no, avoid multiplying the cards.
How to avoid piling up debt on the cards?
“The credit card is a means of payment, not a means of financing,” Youcef Ghellache recalls. In the event that the balance cannot be paid, a financing method must therefore be resorted to. “A personal line of credit has a lower interest rate,” he says. Ditto for the line of mortgage or even a personal loan that would consolidate the debt.
In any case, Youcef advises Ghellache to avoid procrastination and deal with the situation quickly. “You should never just pay the minimum amount,” he says.
Should some people give up a credit card?
No, says Youcef Ghellache, because having a card and using it well helps build credit history. “Someone who is afraid of a card and would rather not have one is penalized the day they want to take out a loan to buy a car, for example, because they haven’t built up their credit history. »
If you’re concerned about losing control, you can resort to prepaid cards or cards that require a down payment, he says, which avoids debt accumulation.
Another piece of good advice from Youssef Ghellache: Don’t wait until the end of the month to pay off your entire balance. Make payments every week so you can keep track of spending and adjust the budget accordingly.
What is the credit rating?
This is what assesses our ability to manage credit based on our history of behavior based on multiple criteria including timeliness of payments and the portion of the limit we use.
Because of this, it’s more beneficial to split purchases between two $1,000 limit cards rather than putting everything on the same limit card, explains Jean-Maximilien Voisine.
In Canada, financial institutions share this information with Equifax and TransUnion, who compile the score.
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