Why increasing minimum credit card payments could be beneficial
Quebec banks require a two per cent minimum payment and more provinces could follow suit
The rules around minimum payments on credit cards have changed in one province and others may soon follow.
As of Aug. 1, banks in Quebec require a minimum payment of two per cent of the balance owing. It will eventually rise to five per cent by 2026.
While this hasn't been introduced in New Brunswick, Tamara Kelly, director of education of Credit Counselling Services of Atlantic Canada, said it may be a good way to repay the debt accumulated on the credit card faster.
Kelly said with a balance of $5,000, a two per cent minimum payment would be $100 and a five per cent minimum payment would be $250.
But she points out the change means the amortization goes from 26 years to six years. "So it does make you pay it off sooner but it could be a shock for a lot of people."
Increasing the interest rates also gives people a more realistic approach to borrowing and repayment.
"When you know your payment's going to come in at $20 it may seem more affordable cause you're not looking at the long term."
But when the payment comes in at $50, Kelly said it might be more noticeable.
"There will be a bit of shock for consumers. Hopefully, it will be one of those shocks of, 'Yes, I've got to concentrate on getting this debt down.'"
When asked if other provinces, including New Brunswick, would consider doing this, Kelly said it would depend on how things go in Quebec.
"This will give the opportunity for the provinces to watch and see how the transition goes and the compliance of it as well."
Kelly said credit card debt is a serious issue in Canada with an average consumer using six or seven cards. "The more credit vehicles or credit items you have to pay, the harder it is to manage it."
While the Financial and Consumer Services Commission of New Brunswick does not regulate the minimum payment charged by a credit card company, it does regulate what information credit card companies need to disclose to consumers prior to an agreement.
"FCNB produces information regularly for consumers on managing their debt as this is an important component of an individual's financial well-being," said spokesperson Sara Wilson.
Wilson said taking on debt should be well thought out, and raising minimum payment requirements may help those who frequently make only the minimum payment, not realizing how much this ultimately costs them.
With files from Shift New Brunswick