Increased minimum payment on credit cards
By Marc Nantel-Legault
Credit cards are more useful than ever in the age of electronic commerce and globalization. It allows you to make purchases anywhere on the planet, with just a few clicks, from the comfort of your own home. It can also put you in debt for years if you do not pay off a significant portion of the balance each month. To prevent debt problems, the Quebec government has increased the minimum payment threshold, a measure welcomed by many observers.
Towards a 5% minimum monthly payment
“Following new provisions in the Consumer Protection Act, the minimum monthly payment percentage will gradually increase until 2025, when it will reach 5%,” explains Marc Nantel-Legault, licensed insolvency trustee. “That percentage doesn’t sound so big, but it can make a big difference to the debt load of credit card holders, who can often only afford the minimum payment on their card balance. “
The Office de la protection du consommateur provides an eloquent example on its website. Thus, the holder of a 19.9% interest rate credit card with a balance of $ 1,000, who would only make the minimum payment at a rate of 2%, would pay $ 3,001 in credit charges and would take almost 26 years to pay off the balance! For the same balance, with a minimum payment of 5% rather than 2%, he would pay a fee of $ 442, and pay off the balance in six years. In fact, going from 2% to 5% of the minimum payment threshold represents a savings of over $ 2,500 in credit charges.
Since 2020, the minimum threshold increases by half a percentage point per year on August 1. It will be 3.5% in 2022, 4% in 2023, 4.5% in 2024 and 5% in 2025.
A weapon of massive debt
Although it is a most convenient tool, the credit card can lead to a lot of debt. Ideally, you pay the balance in full each month, or at least pay off most of the balance. If you are unable to make more than the minimum payment and your debt is particularly high given your income, it may be more beneficial for you to resort to a solution such as the consumer proposal, to free yourself from your debts and get a fresh start.
We invite you to contact us for a personalized assessment. We remind you that the first consultation is free and confidential, without obligation on your part and without initial costs. You may also use our debt consolidation simulator to compare monthly payment and total obligations under three scenarios.