Posted at 6:00 a.m.
An analysis of the investment site Invezz published last week does not give a good economic report for Canada, which, overall, finishes first of the most indebted countries of the OECD.
Invezz calculates that Canadians are the biggest credit card holders, far ahead of Japan and Switzerland, with a rate of 82.74%. This means that only less than one in five adults in Canada does not have a credit card.
To see more clearly, we consulted Jean-Maximilien Voisine, founding president of Milesopedia, a site that offers credit card services as well as advice on choosing and using them, and Youcef Ghellache, co-founder and director of educfinance , a personal finance education service launching its brand new platform this week.
Why are Canadians champions in this regard?
“You have to take this comparison with a grain of salt,” warns Jean-Maximilien Voisine straight away.
Because the OECD countries do not all have the same culture in relation to credit. Canada can be compared to Japan or the United States, but more difficult to European countries. “Europe has a very different credit operating system,” explains Jean-Maximilien Voisine. For example, in France, we talk more about bank cards, and therefore no credit. »
And why are Europeans less addicted to credit cards than we are?
Quite simply because the banks are less insistent in promoting it, because the interchange rates are lower, explains Jean-Maximilien Voisine. This rate, claimed by financial institutions from the merchant on each transaction, is capped at 0.5% in Europe, he says, while it is around 1.5% in Canada.
How many credit cards should we have?
“For ordinary mortals, two,” replies Youcef Ghellache, with good credit limits and different issuers, to deal with an urgent situation. Managing the credit card shouldn’t complicate managing personal finances, he says, because it’s in these situations that one can forget to pay a balance and interest will start accumulating.
Jean-Maximilien Voisine believes that you can have three or four cards to juggle the advantages of each and get the most out of them. “There is no better card,” he said. We must make our choice according to our needs and our behavior. »
We can therefore have a card for grocery shopping and another which will offer travelers insurance, access to airport lounges or which will be free of currency conversion fees, believes the founder of Milesopedia.
The first question to ask is: am I able to pay my balances? If the answer is no, avoid multiplying the cards.
How to avoid accumulating debts on the cards?
“The credit card is a method of payment, not a method of financing”, recalls Youcef Ghellache. In the event that it is impossible to pay the balance, it is therefore necessary to turn to a method of financing. “A personal line of credit will have a lower interest rate,” he says. Ditto for the mortgage line or even a personal loan that would consolidate debts.
In any case, Youcef Ghellache advises to avoid procrastination and to quickly deal with the situation. “One should never pay only the minimum balance,” he says.
Should some people avoid having a credit card?
No, says Youcef Ghellache, because having a card and using it well helps build credit history. “Someone who is afraid of having a card and prefers not to have one will be penalized the day he wants to obtain a loan to buy a car, for example, because he will not have built up his history of credit. »
If you fear losing control, you can turn to prepaid cards or cards that require a deposit, he says, which avoids accumulating debt.
Another good advice given by Youssef Ghellache: do not wait until the end of the month to pay your entire balance. Make payments every week, this allows you to keep track of expenses and adjust the budget accordingly.
What is the credit rating?
This is what assesses our ability to manage credit, based on our behavioral history based on several criteria, including payment punctuality and the portion of the limit that we use.
This is why it is more advantageous to split purchases between two cards with a limit of $1,000 each rather than putting everything on the same card, with the same limit, explains Jean-Maximilien Voisine.
In Canada, financial institutions give this information to Equifax and TransUnion, which compiles the score.