Robert Palumbo • Oct 30, 2015
It used to be that when the going got tough, Canadians lived pay cheque to pay cheque. Today, too many good credit Canadians are living credit card interest payment to credit card interest payment. This is a difficult scenario, compounded by an increasing level of what is known as ‘bad’ debt. With credit card debt levels over $80 billion, responsible Canadians are paying WAY too much in credit card interest payments. From our experience helping Canadians pay off credit card debt, we also know that it is a resolution of many Canadians to get out of credit card debt.
Here at Borrowell, we think that New Year’s Resolutions don’t need to start in the New Year. They can start today. Today can be the day to begin the journey towards a debt-free tomorrow. Today is the day to turn expensive credit card debt from ‘bad debt’ to ‘good debt’ to ‘gone debt’. But first, let’s talk about what bad debt means and what we can do about it.
What is bad debt?
Bad debt is any debt that will make you poorer in the long-term. The classic example of this is pay-day loan debt, which may appear to carry affordable short-term fees, but on an annual basis have APRs (Annual Percentage Rates) up to 599%! Another example of bad debt is credit card debt, which typically carries higher rates ranging from 19.9% to 29.9%. What’s more, credit card debt is a form of “revolving credit”, meaning that the bad debt does not have an amortized pay-off schedule (unlike an instalment loan). That means that credit card debt can stick around for ages – and the rate isn’t customized to you. It’s pretty much the same whether you have good credit or not.
Why are credit card interest rates the same across the board?
It has everything to do with how the the credit card industry operates. When banks and other financial institutions advertise a credit card rate, they are required to offer that same credit card interest rate to all consumers who qualify. In sum, the banks are unable to do what is known as “risk-based pricing:” offering different rates to different consumers based on a consumer’s unique credit risk profile.
To be clear, the banks can choose to accept or deny certain consumers, but they can’t offer different rates to different people for the same card. This means that even if you are responsible with credit, you pay the same interest rates as everyone else. You get no credit for your good credit.
With everyone paying the same high rate, we end up with a Canadian market plagued with over $80 Billion in high interest credit card debt. We have a serious bad debt problem. But there is a solution to the bad debt problem.
Is there such a thing as ‘good’ consumer debt?
There are many definitions of good debt. For example, experts in the personal finance community view debt that finances education as ‘good debt’ because it is debt that can pay off in the form of higher earning potential in the future. We define good debt as any debt that is affordable and can improve your long-term situation rather than worsen it. This includes any form of debt that can help you save money relative to what you might be paying today and in the future.
When used for refinancing, a Borrowell personal loan is ‘Good Debt.’
We think Borrowell is a great example of ‘good debt’. When a Borrowell personal loan is used to pay off credit cards or other higher interest debt, the consumer is better off both today and in the long-term. By paying off the debt at a lower rate, Canadian consumers have saved thousands and have begun the journey towards being debt-free. We have helped good credit Canadians exit the spiral of making only the minimum monthly payments on their credit card each year.
This journey doesn’t need to start with a New Years resolution. It can start this November. At Borrowell, we say #LetsDoThis! Let’s end credit card debt, together. Today.
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