June 25, 2019

Congratulations on your choice of credit card, Canadian Chartered Banks have issued more than 75,000,000 credit cards to approximately 26,000,000 Canadians.  That’s roughly three (bank issued) credit cards for every adult in the country.  In 2017, the last year reported by the Canadian Bankers Association, Canadians charged almost $503,000,000,000.00 on those cards.

Assuming, at least, two cardholders live in each household – which is fair since Statistics Canada reports there are about 14,000,000 households, and we know the numbers of cards and charges have gone up again – that means each household owed a total of $38,676.00 on those cards.  With an average interest rate assumed to be 17% and minimum monthly payments of 2.040% of the outstanding balance, the average household is paying over $800.00 per month to service debt.

If each household stopped putting new charges on their credit cards and focused on paying them off using minimum monthly payments, that could be done in just under seventy (70) years.  But at what cost?  Well, just about $3,000,000.00 in interest charges, yup a mere 7,800% return on investment for the banks.  And that’s just your household. Imagine getting that return on your pension investments – but you can’t because you’re spending your savings on servicing debt.

Alright so let’s take a slightly different view – assume you make minimum monthly payments for five years then pay out the balance of the debt using a re-fi on your house.  You will have paid $39,836.00 and still owe $26,118.00 for a total of $65,954.00, frankly, it’s hard for this writer to think of a more wasteful way of spending your money.

However, if instead of buying impulsively, or using credit cards to meet living expenses, you managed to live within your means, yet put the same $800.00 per month into a basic RSP savings account with a mere 3% per annum return (for the same five year term) you could have saved up as much as $52,000.00.

The bottom line – in five years from now would you rather: 

1.  Pay $65,954.00 for something worth little more than half of that; or

2.  Have $52,000.00 in the bank? 

Those are your choices, and the real consequences of your decision, no judgement but choose wisely and congratulations on either your purchases or your savings.