Would a 20% interest rate catch your eye?

I swear the internet would snap in half if I wrote anything about an investment or savings product with a 20% interest rate or return. Credit card interest rates of 20% are just the opposite. Does anyone care?

At the start of the pandemic, the Bank of Canada’s benchmark borrowing rate was cut to just 0.25%. Credit card interest rates have never fallen an inch. Most cards remained at 19.99 or 20.99%, with low-rate cards around 13%. Pro tip: Never carry a credit card balance unless you’re in a financial emergency.

I’m starting the newsletter in 2022 with a back-to-basics series – you can catch up on previous installments below. Paying off high-interest debt is as basic a personal finance thing as it gets. Think credit cards, unsecured lines of credit and consumer loans set at rates well above the big banks’ prime rate of 2.45%.

A survey done a few years ago for the Federal Financial Consumer Agency of Canada found that 41% of credit card holders carry a balance from month to month, which means interest apply. FCAC offers a credit card payment calculator which highlights the amount of damage done while carrying a scale. If you were to make a minimum monthly payment of 3% on $2,500 card debt at 19.99%, it would take 16 years and 8 months to pay off the entire debt. The total interest cost would be $2,862.

Credit cards are a necessity in a financial world where so many purchases and reservations are made online, and you can earn useful rewards by using cards. But e-commerce promotes the idea of ​​frictionless shopping – just click a few times and the item is on its way to you. The cost is only tangible when you receive your credit card bill in the days or weeks ahead.

Here’s how I handle credit cards: Instead of waiting for my bill and paying a mass of expenses all at once, I use a pay-as-you-go approach. At least once a week, I pay all expenses that have recently arisen. If I put a big expense on the card, I make sure there’s money in the bank to cover it. By the time my monthly bill arrives, all related expenses have been paid in full.

Credit card rates are set by banks based on a variety of factors, including fraud, cardholder defaults, and the cost of an interest-free grace period between when purchases are made and when purchases are made. when your payment is due (assuming you pay your balances in full). Credit cards are different from lines of credit and variable rate consumer loans in that the cost of borrowing does not change with the Bank of Canada’s benchmark rate.

A game plan for paying off debt: Credit cards always come first, due to their high rates. Next are lines of credit and loans, which could become more expensive if rates rise this year. Finally come mortgages, whether fixed rate or variable rate. Mortgages are generally one of the cheapest ways to borrow.

Back to basics Part one: It’s time to review the most basic rule of personal finance


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Rob’s Personal Finance Reading List

What happens in the accommodation

It’s fun – Toronto realtors on the bad advice parents give their children homebuyers. The lowball offer kills me. Yeah, that will work. Let us now turn to a presentation by a tax expert on a case where the Canada Revenue Agency went after someone who, according to her, had wrongly requested exemption from council tax when selling a property. Unless the rise in house prices stabilizes, more people will consider the idea of co-buying a house with a friend. Here is a searing perspective on housing from someone with a background in poverty alleviation and social justice: “Canada the housing market is sick and grossly distorted.

What is your biological age?

A discussion of how future financial planning will focus on biological age, meaning their expected lifespan based on health factors. The benefit is a much more accurate analysis of how much money you can spend in retirement.

Introducing the Vertical Credit Card

Credit card design is changing due to the rise of paying by touch instead of inserting a card so that its magnetic stripe can be read. A new card has a portrait format, a contrast to the traditional horizontal design. The idea is to make the card more convenient to use.

Your credit score and your mortgage

How your credit score influences the interest rate you get on a mortgage and the amount you can borrow.


Ask Rob

Q: I’ve read a lot about the 60/40 portfolio being a thing of the past. I am just starting to retire and have a significant amount of funds in the Vanguard Balanced ETF Portfolio (VBAL-TSX). Given all the talk of rising interest rates and falling bond prices, I’m concerned about slowing VBAL yields and am considering going for the Vanguard All-Equity ETF Portfolio (VEQT), which is 100% equity, then buy one-year GICs because liquidity isn’t an issue. Appreciate your thoughts on this.

A: For starters, a 60/40 portfolio means 60% stocks and 40% bonds. Some in the investment industry think that’s too much bond exposure in a rising-rate world. Vanguard isn’t one of them – the company thinks 60/40 still makes sense. Investors who want to reduce their exposure to bonds take on more risk, as well as upside potential, if they move money into stocks from bonds. An alternative is to substitute guaranteed investment certificates for bonds. GICs do not fall in price when rates rise, nor do they increase in value when rates fall. The cost of this stability is that GICs cannot be easily sold before maturity, unlike bonds. GICs potentially offer higher rates than bonds.

Do you have a question for me? Send me. Sorry I can’t answer each one personally. Questions and answers are edited for length and clarity.


Today’s financial tool

A handy list of tax numbers for 2022, including contribution limits for RRSPs, TFSAs and the threshold at which the Old Age Security clawback begins.


The cashless zone

A man and his frog, Tony. A story said in the tweets.


what i wrote about

More Rob Carrick and Financial Hedging

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