The COVID-19 crisis has caused financial challenges for Sault Ste. Marie residents, leaving individuals and families struggling in its wake. Day-to-day expenses remain high, yet many have suffered drops in income or lost their jobs entirely.
With Ontario’s plans to reopen in phases, many will return to work and will need to consider how to rebuild on financial losses, depleted emergency funds and debt incurred as a result of the pandemic.
Balance transfers: Do they really work?
We’ve all seen the offers: transfer your credit card debt now and pay 0% interest. How could anyone say no to that?
Most of us are carrying at least some debt. According to figures released from credit rating agency Equifax Canada in March 2020, the average consumer non-mortgage debt is now $23,800. Non-mortgage debt typically includes credit cards, loans and lines of credit.
The appeal of 0% interest is obvious, but this tempting rate is designed to catch your attention; it doesn’t tell the whole story.
To benefit from this kind of offer, you need to satisfy several key conditions:
1. Understand that this amazing rate is temporary
No one wants to carry high-interest debt.
A balance transfer credit card usually offers a fantastic promotional interest rate for a set period, but it’s typically only six months or one year. Sure, you can transfer your balance from a card with 19.99% interest to one with 0%, but only for the short-term. Once that brief period ends, the interest rate can shoot right back up to the 20% mark.
2. Be prepared to pay off any amount you do transfer IN FULL, and quickly
You can save hundreds of dollars in interest payments with a balance transfer credit card and become debt-free sooner, but only if you pay off the entire balance you transferred in full before the promotional period ends.
Every payment made during this time directly reduces the principal debt—none goes toward interest. Yet if you don’t pay it off in full, you can end up in more debt than when you started. If a balance is left over when the promotional period ends, you may be charged interest on the full original amount. Read the cardholder agreement very closely.
3. You’ll likely be charged a fee
Most balance transfer credit cards charge between 1.00 and 5.00% of the amount you transfer. This fee will be added to your credit card balance, so factor it into your calculations.
4. Don’t add to your existing debt
That low-interest rate that drew you in only applies to the balance you initially transferred. If you make any new purchases, they’ll be charged the regular interest rate, which can be close to 20%.
If you’re careful to observe all of these conditions, a balance transfer credit card can be worthwhile. The key is that you have to satisfy each one, which can be tricky and costly if a mistake is made.
If balance transfers aren’t the answer, what should I do?
If you’re using one form of credit to pay off another, you’re not making progress and reducing the amount you owe. Revolving credit card debt will not help you create a solid foundation. Instead, it’s important to work on building healthy financial habits.
If you are in the process of financial rebuilding, there are options available outside of balance transfers that will best suit your circumstances. For example, debt consolidation options provide a low-interest rate and simple payment schedule.
And if you’re experiencing credit issues or have bad credit, a bad credit loan is a convenient loan alternative to high-interest credit cards or payday loans that will get you closer to securing lower rates in the future.
Finally, the key to rebuilding your financial health and taking control of future debt is education. Free, credible online resources can help you understand the causes of debt, effective strategies to reduce debt, and how to avoid debt in the future.
“53 per cent of non-prime Canadians report that they have only a basic understanding of personal financial matters including preparing a budget, improving their credit score and managing debt,” says, Andrea Fiederer, Executive Vice President and Chief Marketing Officer, easyfinancial. “However, we know that improving your financial literacy can be the key to taking control of your financial future. With an overwhelming amount of financial literacy content online, it can be challenging to find relevant and accurate financial information all in one location.”
“With goeasy academy, Canadians can access to hundreds of free articles, videos and tools all in one easy to use place from a credible and reliable source. Plus, with recommendations, downloadable eBooks and a dedicated COVID-19 resource centre, Canadians can start improving their financial literacy and taking control of their financial future today.”
For more information, visit us at your local branch or online at www.easyfinancial.com.