The Canadian Credit Card Conundrum

by John Stevenson on November 8, 2011

Canadians are known the world over as kind, gentle folk, who are fond of the outdoors and hockey, and always willing to help a friend in need. And in most cases, this is true. But just because you are a Canadian, it doesn’t mean that your bank manager isn’t out to skim some dollars off of you. The major way that large banks seem to do this is with a vast array of credit cards.

Let’s just break that phrase down – credit. Card. It seems so harmless. It allows you to buy what you need, and then pay at a later stage, when you have the money that you need. Wow, what a great help! Sure, if you are strapped for cash, or need to make a large purchase but don’t carry thousands of dollars around in your back pocket, then a credit card can be a valuable asset. Credit rating systems are also a good barometer of your general financial situation. The fact that a bank trusts you enough to give you a credit card means that they are fairly sure you will be able to pay the money back. You are safe, and reliable. And now, you are obligated to pay the bank back.

Now, this wouldn’t be a problem if we still lived in bartering times. Your mate next door would happily lend you a chicken for dinner, because he knows that next week, you will give him one back. Nowadays, the world of credit is a tricky one to navigate. What prompted this change, the complete failure of socialism or the greed fostered by the free market economy? Whatever the root of this shift may be, the main term that you need to be aware of is interest.

Interest refers to the practice of charging money on borrowed money. If you take out a loan, you will have to pay the money back, and a fixed amount extra, which the bank takes. That extra cash is interest. Banks use it to pay their staff, buy pens that they attach to chains and so on. When you use your credit card, the bank does the same. They have basically leant you the money, and so, you need to pay the full amount back, plus that extra little bit, interest.

The killer when it comes to credit cards is that very few people take into account the interest that they will be charged. Some transactions will lead to an interest rate of up to 16%. So you are paying the set price, and that little bit extra. Banks are also very clever and introduce additional little charges every time you use your credit card.

Luckily, there are options available that offer low interest, so that you are not getting robbed every time you use that valuable piece of plastic. There are countless variations when it comes to low interest credit card options. You can pay no interest, really low interest, delayed interest, or fixed interest on all of your credit card transactions. Naturally, the bank throws in other freebies, like car rental miles or insurance. But be aware that there are hidden clauses in every offer – the bank has to make its money somehow.

Canada is in great economic health right now, and has somehow kept under the radar of the global recession. But maple leaves are not money, and your bank manager is not a kind-hearted Mountie. So, next time you see that great online offer, think twice before clicking your way into credit card debt. It’s a useful tool, but there are a lot of hidden costs. Be sure to read all of the fine prints before you take the plunge!

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