Individuals and families in North Bay have been struggling, hit hard financially by the COVID-19 crisis. Many have seen drops in income or lost their jobs entirely, yet day-to-day living expenses remain high.
While the province plans to reopen in phases and many will return to work, help is still needed. Residents need to know how to restore depleted emergency funds, deal with debt incurred as a result of the pandemic and rebuild on financial losses.
Can balance transfers help?
We’ve all seen the offers: transfer your credit card debt now and pay 0% interest. It’s difficult to say no to an offer like that.
The majority of Canadians 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 0% interest won’t last
It’s likely this amazing promotional interest rate exists only for a very short period—between six months and a year, usually. This means you can transfer your balance from a card with 19.99% interest to one with 0%, but only for the short-term. As soon as that brief period ends, the interest rate will climb right back up to the 20% mark.
2. Only transfer what you can afford to pay off in full
Yes, you can become debt-free sooner and even save hundreds of dollars in interest payments with a balance transfer credit card, but you have to be able to pay off the entire balance transferred in full before the brief promotional period ends. Every payment made during this period directly reduces your principal debt; nothing goes toward the interest.
If you can’t, however, pay this amount off in full you could end up with more debt than when you started. If a balance is left over when the promotional period ends, you will be charged interest on the full original amount.
3. Be ready to pay a fee
You will be charged anywhere from 1.00 to 5.00% of the amount you transfer as a fee. Be aware of this charge and factor it into your calculations.
4. Focus exclusively on debt repayment
The low-interest rate that drew you in only applies to the balance you initially transferred. The regular interest rate will apply to any new purchases, 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.
What other solutions should I consider?
The goal is to build healthy financial habits, so you can make real progress and reduce the amount you owe.
For those currently in the process of financial rebuilding, there are options beyond balance transfers that may better suit your circumstances. Debt consolidation, for example, provides a low-interest rate and a simple payment schedule.
If you’re experiencing credit issues or have bad credit, a bad credit loan can help. It’s a convenient loan alternative to high-interest credit cards or payday loans and will get you closer to securing lower rates in the future.
To rebuild your financial health and take control of future debt, financial education is key. Free, credible online resources can help you understand the causes of debt, effective strategies to reduce it, 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 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.”