How to Manage Credit Cards in Canada

Let’s be honest – credit cards in Canada are incredibly handy. Whether it’s covering unexpected expenses, earning travel points, or just keeping things moving when cash is tight, they’ve become a regular part of life for most Canadians. But the flip side? That convenience can easily turn into a mountain of debt if you’re not careful.

If you’ve ever felt like you’re stuck in a cycle of minimum payments and growing balances, you’re definitely not alone. Many people face the same challenges, and the good news is, there are ways to turn things around. Let’s dive into how credit cards work in Canada, when to consider other options like lines of credit, and how you can start taking charge of your debt – and your financial wellness – right now.

How Do Credit Cards Actually Work?

At their core, credit cards are like short-term loans. Every time you swipe, the bank pays the bill for you, and you repay them later. It’s a nice system when managed well – but here’s the kicker: if you don’t pay your full balance, the unpaid amount starts accruing interest. And with rates hovering between 19% and 26%, that interest can grow fast.

Think of it this way: every month, you’re required to make at least a minimum payment. But paying only the minimum means the rest of your balance sticks around – and keeps growing. Over time, what started as a manageable expense can turn into a financial headache.

The Good, the Bad, and the Ugly of Credit Cards

We’ve all heard credit cards can be both helpful and harmful. But what does that actually mean in practice? Let’s break it down:

The Good:

• Build Your Credit Score: Used wisely, credit cards can help you establish or improve your credit, which is vital for things like buying a home or getting a car loan.
• Fraud Protection: If someone scams you or steals your card, most credit cards have safeguards in place.
• Perks and Rewards: From cashback to travel points, there are plenty of ways to get value back from your spending.
• Emergency Access: Sometimes, you need funds immediately, and a credit card can be a lifesaver.

The Not-So-Good:

• High Interest Rates: If you carry a balance, those double-digit interest rates can quickly make small purchases feel a lot bigger.
• Fees, Fees, and More Fees: Late payment fees, annual fees, foreign transaction fees – it all adds up.
• The Illusion of Wealth: It feels like free money, but it’s not. Spending on credit can sometimes mask how much money you actually have.

When Should You Use a Credit Card vs. a Line of Credit?

Not all debt is created equal. While credit cards are great for everyday spending, they’re not always the best option for larger purchases. Lines of credit, which typically offer lower interest rates and higher borrowing limits, can sometimes be a smarter choice.

Let’s look at two scenarios featuring our friend Benny:

Example 1: Benny’s TV Purchase

Benny wants to buy a new TV for $500 CAD. Should he use a credit card or a line of credit?

Credit CardLine of Credit20-day grace periodNot applicable (lines of credit often have a $5,000 minimum)22% interest rateN/A

Outcome: Benny decides to use his credit card. To pay it off in six months, he’ll make monthly payments of about $90. By the end, he’ll have paid $540 which just $40 more than the TV’s price.

For smaller purchases, a credit card works if you can clear the balance quickly.

Example 2: Benny’s Car Purchase

Now, Benny is looking at buying a $7,000 car. What’s the better option?

Credit CardLine of Credit22% annual interest rate9% annual interest rateTotal paid: $11,519.75 over five yearsTotal paid: $8,673 over five yearsMonthly payment: $195.25Monthly payment: $147

Outcome: The line of credit saves Benny almost $3,000 over five years. For larger expenses like this, it’s clearly the better choice.

4 Simple Tips to Manage Credit Card Debt

If you’re feeling stuck, don’t panic. With a few small changes, you can start to turn things around.

1. Pay More Than the Minimum:

Minimum payments are designed to keep you in debt longer. Aim to pay off your full balance – or at least more than the minimum – each month to reduce the interest piling up.

2. Track Your Spending:

You’d be surprised how much those small, daily purchases add up. Keep an eye on your credit card statements and look for areas where you can cut back.

3. Set a Budget (and Stick to It):

A budget doesn’t have to be complicated. It’s just a plan for your money. Knowing where your money is going makes it easier to avoid overspending.

4. Avoid Adding More Debt:

It’s tempting to open new cards for rewards or promotions but focus on paying down your current balances before taking on anything new.

Need Some Extra Support with your credit cards in Canada?

If this all feels overwhelming, you’re not alone and you don’t have to wade through debt by yourself. At Wealthstack, we understand that managing debt and finances can be challenging, which is why we are so committed to making money matters simple again.

Our team of qualified, independent financial advisors specializes in helpingpeople like you take control of your financial wellness to achieve your goals with peace and clarity. Whether it’s creating a plan to tackle credit card debt or exploring better options like lines of credit, we’re here to help every step of the way.

Discover how Wealthstack’s personalized financial dashboard can simplify your money management. Let’s build a plan that works for you. Book a Demo

Credit card debt can feel like a heavy weight, but with the right tools, strategies, and support, it’s absolutely manageable. At Wealthstack, we’re here to help you make smarter financial decisions and create a path toward the life you’ve worked so hard to build in Canada. Let’s get started today!