Getting a credit card that suits your spending preferences is becoming easier in Canada with each passing day. However, failure to manage it properly can result in a huge financial mess that may end up changing your lifestyle forever. That is why you should compare the pros and cons of credit cards before using them. Some of the advantages of using a credit card include their safety compared to cash, rewards and incentives. On the other hand, the disadvantages of credit card use that you should know are higher interest rates, potentially negative effects on credit scores, and annual fees. Turkin Mortgage can inform you about all the pros & cons of owning Credit Cards.

Even though credit card advantages and disadvantages are equal, most millennials in Canada still consider getting one an achievement. That may be one of the main reasons why credit card numbers have increased in recent years, as shown by the diagrams below. So, how many credit cards are there in Canada? The exact number may be hard to tally, but it is believed to be in millions, given the multiple types in circulation.

Advantages of Using Credit Cards in Canada

Very few people think about what is an advantage of using a credit card beforehand, even though every credit card brand has numerous benefits and potential cons that are worth considering before opening an account. So, what are the advantages of credit cards?

  • Different currencies do not limit them

One of the credit card benefits is universal usage, which makes it a more convenient option when travelling to a foreign country. You can purchase anything without worrying about cash conversions, but the transaction fees will differ. Some credit card companies even reward their customers by wavering transaction fees for the international use of their cards, especially for frequent international buyers.

  • You get rewards when you spend

Most credit card brands give their customers points as rewards for their loyalty. The more you pay using the same card, the more your chances of getting the points, which you can redeem for services like free travel. You may also get cashback or other merchandise from the points. Some of the reward programs may require you to spend on specific items like gas or groceries.

  • It is a safer alternative to cash

Is it better to use cash or credit cards in Canada? Carrying credit cards around is easier and safer than having a bunch of cash. They can be cancelled if stolen to prevent fraudulent transactions. Contact the company as soon as you suspect the card is gone.

  • Credit cards can increase your credit score

If your credit history is bad, credit cards can help you improve it and increase your score in the process. All you have to do is pay your premiums in time to show that you are responsible for your finances. With time, you will be able to access more loan products and have better chances of approval.

  • You can get interest-free intervals

Some credit cards have interest-free durations, which, in most cases, happen when you complete your balance before the time elapses. The periods differ and could be as long as six months.

  • Debt consolidation

Managing several bills and loans at the same time can be very difficult. You may forget to pay some of them, leading to an accumulation of debts over time. With credit cards, you can combine high-interest debts into a single account with lower rates. Balance transfer credit cards have been known to help with this concept. By focusing on one account instead of several, you will pay off the debts faster and save some money in the process.

  • They provide an emergency line of credit

For most people, emergencies come when you do not have enough funds to handle them immediately. One of the benefits of a credit card is helping you in such situations. They provide a cushion when there isn’t enough savings or cash for unexpected arising costs.

  • Chargebacks are always an option

If you pay for a service or product with a credit card but end up being dissatisfied with it, you can request a chargeback from the merchant through the credit card company.

  • Extra complimentary

Some of the extras available with credit cards include purchase protection, travel insurance, and complimentary flight offers. In addition, complimentary flight offers and early ticket sales are also available.

Disadvantages of credit cards in Canada

If you are wondering, what are the disadvantages of a credit card? Below are some examples to consider.

  • Credit card fraud is high

Credit card schemes targeting credit card users are on the rise. However, you can always get compensated for the illegal transactions that happen on your account. You may still spend a lot of time and energy dealing with the processes.

  • High rates

One of the most common disadvantages of using a credit card is the high-interest rates attached to them. Some charge interests as high as 22% APR, while others go even higher to 29.99%. That, combined with the temptation to max out the credit card, can put your finances in an unpleasant situation. The interests usually get higher when you fail to keep up with your monthly payments.

  • Credit score damage

Before approving your credit card application, the company will check out your score from the credit bureaus. The hard enquiry can negatively impact your credit score for a short period. Since the ongoing credit card debt and your ability to pay on time are also recorded, your credit can reduce when you keep maxing out or paying late. You can avoid this by using 30% of the credit limit or less.

  • High annual fees

Unlike debit cards, most credit cards have ranging annual fees depending on the type of card and company you choose. Some may cost as little as $25 per year, while others can go up to $800. The fees are usually attached to the extra services on the card. Therefore, the more perks it has, the more you are likely to pay annually. However, free credit cards are also available, but they may have limited features. Ensure what they offer works for your needs before settling on any of them.

  • Extra fees add to the monthly payments

Failing to pay penalties on time can quickly make managing the card very difficult, adding to the cons of credit cards. Additional fees may come from overseas transactions, charges on going above the credit limit, and balance transfer costs. Some companies also charge extra when introducing new reward programs. In case you carry the balance and do not get interest-free periods, you will incur more charges.

  • Convenience fees

Also known as surcharges, this fee is usually part of the transaction costs. It ranges between 0.5% to 3% and is for the convenience that the card provides. You are paying for having the plastic card instead of walking around with cash. In Canada, merchants are obligated to inform you about this charge before you pay using the card.

  • Cash advance charges

Withdrawing cash using the card or using it to transact equivalent processes can be very expensive. That means buying foreign currencies or engaging in other activities like gambling is not advisable. Most companies charge approximately 3% of the amount withdrawn, with an additional interest rate ranging between 19.99% and 21.99%. Advance cash transactions do not have interest-free periods.

What Credit Card is Best for You?

Fascinating Credit Card Statistics in Canada

Many interesting facts about credit cards exist, but very few people pay attention to them. In Canada, the average credit card debt is approximately $2,000 and over 65% of residents had at least one card by 2018. Credit card statistics show that their use is only increasing now, but they have been around since 1950.

1. Average Canadians carries 2 credit cards.

According to Canadian Bankers Association, the average number of credit cards per person in Canada is two. Most people use the cards to pay for utility bills or buy clothing and footwear products online, with the most used brands being Mastercard and Visa cards.

It is projected that the number of active credit card accounts in Canada is likely to increase to 50 million by 2030. Given the high number of companies and institutions providing numerous credit card offers, Canadians are taking advantage of this form of payment.

2. The lowest among the Canadian credit card rates is at 8.99%.

One of the most crucial factors to consider when searching for a credit card in Canada is the interest rate. Every company has different rates that you should compare before choosing any of them. The lowest credit card interest is believed to be by the MBNA True Line Gold, at 8.99%. This percentage differs from the country’s average, which is around 19%. Some companies go as high as 29.99%. The lower rates are usually better for those with unreliable income sources and may not pay off the monthly balances in full.

3. Over 40% of Canadians have a credit limit of $10,00 or more.

The credit limit is the maximum amount you can spend within a specific statement period. Maximizing that limit or going above it is never advisable because it can lead to lower scores and reduced loan options. It is estimated that only 15% of people have a credit limit lower than $2,000.

4. The average Canadian debt is around 3%.

The average credit card debt in Canada per person is approximately 3%, according to Equifax Canada. The agency, which collects and loans consumer information, compared the statistics with the previous years’.

The rate increased in late 2019 when the average non-mortgage debt in the region was more than what was experienced in 2018. In addition, other debt sources such as lines of credit and personal loans also shot up. However, these are still lower compared to mortgage debts, which also doubled up within the year.

5. Over 80% of Canadians aim to prioritize paying off their household debt.

Every person, including Canadians, dreams of living debt-free lives. The thought of accumulating debts is a real fear, and rightfully so. Over 90% of Canadians believe that they have too much of it because of household responsibilities. The ease with which credit cards are available only makes the problem worse. More and more Canadians find themselves falling into the burden of debt, which leads to mounting stress when they fail to keep up with the payments.

6. 40% of Canadians do not shop at places without contactless payment options.

Statistics show that the spending habits of Canadians have changed significantly because of the coronavirus pandemic. One of the changes is in the 40% of residents who have admitted that they walk away from businesses that do not have contactless payment options. Another statistic shows that over 75% spend less than they did before the Covid-19 situation, which can also be attributed to the increasing use of electronic transfers and use of credit cards. Out of those who used credit cards before, 28% of them now do it more often. In addition, in-store purchases are reported to have had up to 53% card and mobile tap payments.

7. 30% off debit cardholders use their smartphone to make payments.

The use of smartphones to pay for products and services may be the most convenient, but it also leaves most Canadians vulnerable to fraud. Over 30% find it easier to use their phones, with that trend only increasing. However, most people also take into account the possible ways using phones to complete payments can jeopardize their information. That is why many residents also shy away from using phones to complete payments.

8. 13% of all credit card transactions are used for paying bills.

Statistics have shown that more Canadians are using credit cards in point of sale sectors, but many others also use them to take care of utility bills every month. Other types of bills include insurances, monthly subscriptions, and additional memberships. The convenience that this form of payment brings is one of the reasons for this kind of reliance.

9. The average credit card in Canada is around $2000.

The average credit card debt in Canada is approximately $2000. However, applying for credit cards is not the reason why Canadians fall into debt. Based on a Canadian Mortgage and Housing Corporation report, credit cards only make up 5.3% of household debts. Statistics also indicate that half the number of people who have a single credit card keep up with payments every month.

You have to try to keep up with your monthly payments to prevent the accumulation of debts and possible credit score reduction.

10. Less than 10% of Canadians don’t know about rewards programs.

One of the benefits of credit cards is the reward programs attached to them, and most Canadians seem to prioritize that when shopping around for a card. However, less than 10% do not know about the programs, and a lesser number know about the particular programs.

Should You Use a Credit Card?

The big question remains, “is it worth having a credit card?” The answer varies depending on every person and your specific situation. You must consider the pros and cons before getting one.

If you are above 18 years, permanently reside in Canada or are a citizen, have a steady income source, and pay your bills regularly on time, then credit cards are a good idea. They are also a great idea if you are looking to separate some of your transactions from your bank account or want a more flexible payment mode. In addition, the reward programs that credit cards have and the level of convenience they bring are some of the reasons to have a credit card.

However, credit cards are a bad idea if paying your bills on time is a constant struggle, you do not have a stable job and a source of income, you do not meet the residency and age criteria, or you have poor money management skills. Bad credit mortgages and not being able to afford the interest rates and annual fees are also signs that you should not get a credit card.