Savings & Debt

Most credit cards compound interest on a daily basis and interest rates on credit cards can range anywhere from 10%–29%. This deadly combination can result in out-of-control debt, which is especially true if you carry a balance and your regular payments do not significantly exceed the minimum monthly payment. Some credit cards offer a grace period (usually 10-20 days) for payment, where if the balance is paid in full, no interest will be charged.

Loans will compound according to the payment schedule. Therefore, if your car loan is set up for monthly payments, the interest will compound monthly.

Mortgages compound semi-annually with the exception of variable-rate mortgages.

There are a variety of products that financial institutions can offer to help your savings grow. From regular savings accounts, high-interest savings accounts, guaranteed investment certificates (GICs), term deposits, mutual funds, stocks and bonds…it’s an exhaustive list of options. The compounding frequency will vary depending on the product and there are differences among financial institutions.

Generally no, if you are simply requesting a copy of your credit file from the credit bureau. However, if a lender is requesting a copy of your credit file because you have applied for credit through that lender, it is called an inquiry. Multiple inquiries in a relatively short period of time harm your credit rating. If you know that you need to borrow, research the various lenders ahead of time. Narrow it down to one or two lenders who will check your credit file once you apply for credit.

Having one or two active credit cards that you use and quickly pay off the balance actually improves your credit rating. If you have more than two credit cards, you are at risk of negatively impacting your credit rating even if you don’t normally carry a balance on them.

Credit cards and lines of credit are classified as revolving credit products. You can borrow up to the given limit at any time. As you pay down the balance, available room is created for you to borrow up to the limit once again. This revolving nature attracts a higher-risk rating if you have multiple revolving credit products active on your credit file.

Generally, yes. First, see the answer to the FAQ “How many credit cards should I have?” Second, you should call the lender to request that they cancel and close any credit product that you no longer need. Then check your credit file to confirm. Credit products that remain active and open continue to report to the credit bureau and can potentially harm your credit rating. Also, it makes sense to cancel and close old credit products as a defence mechanism against possible damage from identity theft and fraud.

If you are new to credit and/or wanting to reduce the number of credit cards you own, it’s best to keep your oldest card open, especially if it has a positive payment history. Closing it can hurt your score more significantly than it would for someone who has a much longer credit history.

There are two. The first is that a person (or family) needs to live within their means (that is, attempt to live on less than the monthly take-home pay), which means not carrying over credit card balances.

The second is to have a plan to make regular payments against outstanding debt, not just making the minimum interest charge payments. Also, never be late with a credit payment. The focus here is to be “uncomfortable” with debt.

With these two steps, a secure “pattern of behaviour” is built, which makes one financially enabled for the future.

Major credit cards (such as, Visa, MasterCard) offer various credit cards, each having a different rate of interest on unpaid monthly balances. The lowest-rate credit card has a rate of approximately 9%. The banks do not usually advertise this credit card—you have to ask for it.

The normal Visa/MasterCard credit cards charge 16%–18% interest on any unpaid balance. The department store credit cards typically charge approximately 28%. However, the method they use to calculate the interest penalty on unpaid month-end balances is referred to as “compounded monthly”, which causes the effective rate to be 32%, not 28%.

Don’t forget the annual fees. Many credit cards with additional features such as points, air miles, cash back, etc., will charge an annual fee over and above any interest charged. Compare credit card fees and add-on features. Use the card that gives you the best value.

By making payments early and more frequently, a portion of the payment reduces the principal, which results in interest being calculated against a reduced amount. Hence, you save by reducing the interest you would have paid over the term of the mortgage.

Call your bank and simply ask to open a line of credit. You might indicate that you do not need it now but want the protection for the future.

The bank will ask if you wish to “secure” the line of credit with a contingent commitment of other assets such as the equity in your home. If you agree to do so, the rate of interest they charge is lower. You may choose, however, not to commit your assets, particularly if your assets are modest. If you don’t commit any assets, your line of credit is unsecured.

There is no cost for opening a line of credit, until you use it.

You will pay provincial tax to the provincial government where you are living on December 31st of the year you move. To identify which province is the better place to be by year-end, estimate your income for the year. Then look up the Alberta and B.C. marginal tax rates for that income. If your tax will be lower in Alberta, do the move before December 31st.

RDSP contributions are not taxed when withdrawn, but grants, bonds and investment income are. They are considered taxable income, in the hands of the beneficiary (or the beneficiary’s estate). Every dollar withdrawn from a RDSP is deemed to be made up of:

  • Contributions
  • Grants and bonds
  • Investment income (such as, compound investment returns)

It depends:

  • Federal benefits, including income-based programs, are not affected by RDSP withdrawals (examples include Canada Pension Plan Disability, Old Age Security and Guaranteed Income Supplement payments).
  • Provinces and territories: the impact on provincial financial assistance (social assistance support) programs varies by jurisdiction:
    • Check out your provincial or territorial website for further details.