Victoria Financial information: Credit Cards Can Be Costly



(NC)-Walking through a mall, doing your Christmas shopping, you pass a booth where someone offers you a free gift if you sign up for a credit card. Should you go for it?

"It depends whether or not you understand how that little plastic card can cost you if not handled properly," advises Chris Ferguson, Director of the Consumer Protection Branch.

Credit card debt, especially among 18-24 year olds, has doubled over the past decade, and more and more people file for bankruptcy every year. "Many consumers don't understand how interest and finance charges are calculated," adds Ferguson.

Credit cards have a grace period: if you pay your balance in full before the due date, you don't rack up any extra charges. But if you're late with your payment, by even a day, or don't pay off the entire balance, you will be charged interest and fees.

Then there's the minimum payment myth.

"A lot of people think that by making the minimum payment, they're in the clear and will eventually pay off the debt," Ferguson notes. "But it may not be as easy as they think."

Why? Most of that $20 or $30 minimum required payment goes towards interest and fees, not the actual principal. If, for example, you make the minimum monthly payment on a credit card with a $1000 balance at 18% interest, it would take you over 19 years to pay off the debt and cost you almost $2,000 in interest!

So when you receive your credit card bill in the New Year, remember to pay the balance on time and in full. If that's impossible, pay more than the minimum.

If used responsibly, credit cards can help you build a good credit history - a record of how well you pay off your debts.

Consumer reporting agencies, or credit bureaus, collect your credit history. Your information stays on file for 6 years and is given a rating that shows companies how creditworthy you are.

A good rating means you'll probably get that car loan. But, not paying credit card bills on time will give you a bad rating and you could be turned down for a job, apartment or mortgage. Just remember: that little piece of plastic comes with some pretty big responsibilities.

To learn more about credit cards and reports, visit www.ontario.ca/consumerprotection or call toll-free 1 800 889 9768.

- News Canada

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