Would a 20 per cent interest rate get your attention?

I swear the internet would break in half if I wrote something about an investment or savings product with a 20% interest rate or return. The 20 percent credit card interest rates are the exact opposite. Does anyone care?

At the start of the pandemic, the benchmark rate for Bank of Canada borrowing was reduced to just 0.25%. Credit card interest rates have never given an inch. Most cards stayed at 19.99 or 20.99 percent, with low rate cards around 13 percent. Pro tip: Never carry a balanced credit card unless you are in a financial emergency.

I’m starting the newsletter in 2022 with a return to the core series – you can catch up on previous installments below. Paying off high-interest debt is as easy as it can get in the realm of personal finance. Think credit cards, as well as unsecured lines of credit and consumer loans pegged at rates well above the major banks’ 2.45% prime rate.

A survey conducted a few years ago for the Federal Financial Consumer Agency of Canada found that 41 percent of credit card holders carried a month-to-month balance, meaning that interest applies. FCAC offers a credit card payment calculator that highlights the damage done when you keep a balance. If you were to make a minimum monthly payment of 3% on a card debt of $ 2,500 at 19.99%, it would take you 16 years and 8 months to pay off the debt in full. The total cost of interest would be $ 2,862.

Credit cards are a necessity in a financial world where so many purchases and reservations are made online, and you can earn some useful rewards using the cards. But ecommerce promotes the idea of ​​frictionless buying – you just have to click a few times and the item is on its way to you. The cost is only tangible when you receive your credit card bill in the days or weeks to come.

Here’s how I deal with credit cards: Instead of waiting for my bill and paying loads of expenses all at once, I use a pay-as-you-go approach. At least once a week, I pay all expenses that have recently arisen. If I put a big expense on the card, I make sure there is money in the bank to cover it. By the time my monthly bill arrives, all related expenses have been paid in full.

Credit card rates are set by banks based on a variety of factors, including fraud, cardholder defaults, and the cost of an interest-free grace period between when purchases are made and payment. your payment due date (assuming you pay your balances in full). Unlike lines of credit and adjustable rate consumer loans, credit cards do not change based on the Bank of Canada’s benchmark rate.

Debt Repayment Game Plan: Credit cards always come first, because of their high rates. This is followed by lines of credit and loans, which could become more expensive if rates rise this year. Next come mortgages, whether fixed rate or variable rate. Mortgages are generally one of the cheapest ways to borrow.

Back to basics Part 1: It’s time to revisit the most basic rule of personal finance

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Rob’s Personal Finance Reading List

What is happening in the accommodation

Funny – Toronto realtors on bad advice parents give their child homebuyers. The lowball offer is killing me. Yeah, that will work. Let us now turn to a presentation by a tax expert on a case where the Canada Revenue Agency attacked someone who it claimed improperly claimed the personal residence tax exemption during the sale of a property. Unless housing price increases stabilize, more people will consider the idea of ​​co-buying a house with a friend. Here’s a hot take on housing from someone with a history of poverty reduction and social justice: “The housing market in Canada is sick and seriously distorted. “

What is your biological age?

A discussion of how financial planning will focus in the future on an individual’s biological age, which means their expected lifespan based on health factors. The benefit is a much more precise analysis of how much money you can spend in retirement.

Presentation of the vertical credit card

The design of credit cards is evolving with the rise of payment by tap instead of inserting a card to read its magnetic strip. A new card has a vertical format, a contrast to the traditional horizontal design. The idea is to make the card more convenient to use.

Your credit rating and mortgage

How your credit score influences the interest rate you get on a mortgage and how much you can borrow.

Ask Rob

Question: I’ve read a lot about how the 60/40 wallet is a thing of the past. I am just starting to retire and have a significant amount of funds in the Vanguard Balanced ETF Portfolio (VBAL-TSX). Given all the talk about rising interest rates and falling bond prices, I’m concerned about the slowdown in VBAL yields and I’m thinking of going for the Vanguard All-Equity ETF Portfolio (VEQT), which is made up of at 100% equity, then buy one year GIC because liquidity is not an issue. Appreciate your thoughts on this.

A: For starters, a 60/40 portfolio means 60 percent stocks and 40 percent bonds. Some players in the investment industry believe this is too much exposure to bonds in a world of rising rates. Vanguard isn’t one of them – the company thinks 60/40 still makes sense. Investors who wish to reduce their exposure to bonds take more risk, as well as upside potential, if they move money into stocks from bonds. An alternative is to substitute guaranteed investment certificates for bonds. The price of GICs don’t go down when rates go up, nor do they increase in value when rates go down. The cost of this stability is that GICs cannot be easily sold before their maturity, unlike bonds. GICs potentially offer higher rates than bonds.

Do you have a question for me? Send me. Sorry, I cannot respond to each one personally. Questions and answers are edited for length and clarity.

Today’s financial tool

A handy list of tax numbers for 2022, including contribution limits for RRSPs, TFSAs and the threshold at which the OAS clawback begins.

The cashless zone

A man and his frog, Tony. A story said in tweets.

What i wrote about

More Rob Carrick cover and money

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