Tag Archives: debt

The Pros and Cons of Store Credit Cards

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By Barry Choi

Special to the Financial Independence Hub

Even as another holiday season has arrived and nearly gone, retailers are trying their best to get us to spend money at their stores. One way they hope to achieve this is by offering enticing rewards and promotions when you sign up for their store credit card. This is a great strategy for retailers, but it’s also potentially a good deal for you since store credit cards can help you pocket additional savings.

Since many people already have a credit card, does it make sense to sign up for a new store credit card? Like any other credit card, it really comes down to the pros and cons of the card and how it fits into your spending.

The pros of store credit cards

Instant welcome offers

Although the welcome offers that come with store credit cards aren’t as generous as some other cards out there, sometimes they’re worth paying attention to. For example, the Hudson’s Bay credit card gives you 10% off your first purchase. If you’re buying a big-ticket item, then it might be worth your while to sign up: especially if you shop from Hudson’s Bay on the regular card.

Unlike most credit cards, the savings offered by store credit-card promotions are also instant. You won’t have to wait several statement periods or spend a certain amount (i.e. $3,000 within three months) to access the offer.

  • Great rewards for shopping in their stores

What’s really attractive about store credit cards is their enhanced in-store rewards. This, of course, is only relevant if you happen to shop at the retailer on a regular basis.

For example, with the Triangle Mastercard, you’ll earn 4% in Canadian Tire Money per dollar spent at Canadian Tire stores. There’s no other credit card out there that can beat that return at Canadian Tire, so if the iconic retailer is a regular part of your shopping routine, you could stand to save big with this store credit card.

PC Optimum is another popular retail loyalty program in Canada. If you were to apply for a PC Financial Mastercard, you could earn up to 30 PC Optimum points per dollar spent at Loblaws-owned grocery stores and up to 45 points per dollar at Shoppers Drug Mart: a 3% and 4.5% return respectively. Those earn rates add up to considerable savings on your grocery and pharmacy bills, even compared to what non-retail credit cards offer.

  • Store credit cards are often easier to get

What’s also appealing about store credit cards is that they often have low income requirements and there’s usually no annual fee: so they’re easy to get and free to carry. The reason retailers do this is so you’ll be more inclined to apply. For example, the Costco credit card from Capital One has no annual fee and the application doesn’t list a minimum income requirement.

  • Store credit cards often let you take advantage of unique financing options

Sometimes store credit cards offer special in-store benefits that can’t be ignored, such as Canadian Tire’s credit cards, which offer no interest financing up to 24 months that applies to qualifying purchases of $200 or more at participating stores.

Let’s say an emergency has come up and you’ve had to spend $600 at Canadian Tire. By taking advantage of the no-fee, no-interest financing, you’d only have to pay $25 a month for 24 months with no additional interest or fees. This is handy if you don’t have the funds available to pay off the purchase right away. Continue Reading…

Canadians have an Income problem, not a Debt problem

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BoomerandEcho.com

It’s not hard to find a report about the growing Canadian debt problem. Canadians owe $1.77 for every $1 they make. The average consumer owes $31,400 in installment and auto loans, while borrowing for credit cards and lines of credit average $18,500 per consumer. Finally, there are reports that nearly half of Canadians won’t be able to cover basic living expenses without taking on new debt.

Half of Canadians say they have less than $200 left over at the end of the month, after household bills and debt payments. Canadians’ household savings rate is an abysmal 1.7 per cent.

Canadians have a major debt problem! All the warning signs are there. We’re overextended, borrowing to maintain our cost of living, and at risk of insolvency if a recession hits. It’s a crisis!

Our affordability problem

Not so fast. It looks to me like Canadians have an income problem, not a debt problem. Or, put a different way, Canadians have an affordability problem. The median after-tax income for Canadian families is $71,700. Meanwhile, the average house price in Canada is $512,501. That’s an incredible 7x income! For reference, the typical rule of thumb for housing affordability is 2.5x income. That means Canadians should be buying homes worth $179,250.

The discrepancy is even more staggering in B.C. and Ontario:

Avg. house price Median income Affordability
British Columbia $696,115 $72,200 9.64x
Ontario $618,165 $73,700 8.39x

It’s not just housing. Child care costs have risen faster than inflation in nearly two-thirds of cities since 2017. It’s often the single largest household expense after rent or a mortgage. The median cost of child care in Canada’s largest cities hovers around $1,000 per month, with parents in Toronto paying $1,675 per month. The exception is in Quebec, where a universal child care program has been in place for more than two decades (families pay $175 per month for child care in Montreal).

Transportation is the next largest expense for Canadians. On average, we owe $20,000 on our vehicles. The average price of a new vehicle has risen to $37,577. Today, it’s common to see auto loans stretched out over seven or eight years. That helps lower monthly payments slightly, but families are easily paying $500 per month or more on each vehicle (with many two-car families).

Beyond frivolous Debt

All this to say, it’s no wonder Canadians are struggling to get by from month-to-month. We’re accessing cheap credit, in a lot of cases, to fund basic living expenses or cover emergencies. It’s not like we’re out there buying diamonds and furs.

Furthermore, Scott Terrio, insolvency expert at Hoyes Michalos, says it can be misleading to suggest Canadians are so close to insolvency. He says there is a lot of runway between when someone is in financial trouble and when they file a legal insolvency.

“One can be technically insolvent for months, even years, before they need to consider an actual filing. We regularly have clients tell us that they should have come in to see us 12-24 months earlier than they did. That’s because there are all sorts of ways to stave off a legal insolvency.”

Indeed, there are only about 55,000 bankruptcies and 75,000 consumer proposals filed by Canadians every year.

“And there are 37 million Canadians, so you do the math,” says Terrio.

It’s an Income problem

No, we have an income problem that is crippling our ability to save. I’ve seen it firsthand. As a young homeowner, who admittedly got in over his head as a first time buyer, I struggled to pay my mortgage, buy groceries, and service my student loan debt (another issue altogether for young Canadians). Continue Reading…

These are the credit cards Canadians favour the most, according to J.D. Power

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By Barry Choi

Special to the Financial Independence Hub

J.D. Power has just released its 2019 Canada Credit Card Satisfaction Study and Canadians have spoken: they prefer non-traditional card issuers over what the big banks are offering. This shouldn’t be a huge surprise as consumers had a similar outlook in the 2018 study, but there have been some minor changes to the ranking of cards with Tangerine Bank now having the highest overall customer satisfaction rating.

Using a 1,000-point scale, the average overall ranking was 754, but the top four credit card issuers had an average score of 799. Ratings were based on six factors: Benefits and Services; Communication; Credit Card Terms; Customer Interaction; Key Moments; and Rewards.

With more than 6,600 cardholders taking part in the survey, it’s impossible to determine what everyone was thinking, but we can make some logical assumptions based on the data available.

Canadians are favouring non-traditional card issuers

The biggest takeaway from the survey is that Canadians are favouring non-traditional card issuers with Tangerine, American Express, Canadian Tire and PC Financial taking the top 4 slots. This might be shocking to some people but when you look at the features of the credit cards offered by these companies, it may not surprise you at all.

The Tangerine credit card has become a popular card ever since it came onto the scene a few years ago. What makes this card appealing is that you get to choose up to three categories where you’ll earn up to 2% cash back. Every other credit card out there offers cash back has pre-defined categories so Tangerine is giving their customers the ability to choose what works best for them.

With American Express, they offer both cash back and travel cards, but one feature that’s unique to all of their cards is American Express Invites. With American Express Invites, you get exclusive access to some of the best entertainment, dining, and shopping experiences out there.

When it comes to Canadian Tire, it’s a brand that every Canadian knows. Canadian Tire Money is one of the most popular loyalty programs in the country and it has recently become better since the Canadian Tire credit card lineup was updated and rebranded to Triangle Mastercards.

Then there’s PC Financial Mastercard, which took the top slot last year but has fallen to fourth. Their PC Optimum program is still incredibly popular since you can earn up to 45 points per dollar spent at Shoppers Drug Mart and 30 points per dollar spent where President’s Choice products are sold. In other words, you can earn free groceries and merchandise fast with PC Optimum.

Cash rewards are more popular

According to the survey, 30% of those who responded said they preferred cash rewards. Airline rewards followed with 23%. Overall, customers who understood the value of their rewards program and what they earned were more likely to recommend their card over people who weren’t exactly clear how their rewards worked.

Favouritism towards cash back is nothing new as many Canadians now prefer the simplicity of cash rewards. With cash back credit cards, you get a set % back for every dollar you spend and you can cash out when you have a certain amount banked. When you compare that to travel rewards which may have blackout dates or it may take a ton of points before you can redeem any rewards, it’s easy to see why people prefer cash back these days.

That said, airline rewards are still popular. Within Canada, Air Canada controls much of the airspace so their loyalty program Aeroplan is still incredibly popular. Earlier this year, Air Canada formally acquired Aeroplan and have started to slowly implement some changes. Many Canadians are excited to see what else Air Canada has planned for Aeroplan which is likely why airline rewards are still ranked second overall.

Canadians prefer fewer communications

Unlike customers in the United States, Canadians were more satisfied when their credit card provider only contacted them once or twice a year. Overall, people much preferred email as their preferred way of communication. Continue Reading…

Like a good neighbour, the Fed is there

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By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

At last, the July FOMC meeting has come and gone, and the Federal Reserve (Fed) has done what was widely expected: it cut the federal funds target range by a quarter point. The Fed also announced they would be ending their balance sheet reductions in August, two months earlier than previously indicated. With all the Fedspeak, changing market expectations and the recent rebound in the jobs report, the time had come for the policy makers to put an end to the conjecture. While this decrease, of 25 basis points (bps), does fit into the Fed’s ”insurance policy” narrative, it still leaves open the question of what the future may hold.

Let’s get right to that point, shall we? Unlike the June FOMC meeting, this gathering was limited to the usual policy statement and Chair Powell’s presser. In other words, there were no blue dots (the Fed’s own fed funds forecasts) this time around. The policy statement, which is what the Fed views as its official policy stance, was little changed from the June meeting including the key phrase “will act as appropriate,” leaving the door open for additional accommodation this year. In fact, since the 50-bps-rate-cut crowd is somewhat disappointed by the July results, the focus has now shifted to another reduction in fed funds at the September 17–18 FOMC meeting.

Remember, this rate cut was really not predicated on the Fed’s baseline outlook for the U.S. economy; it was the voting members’ way of trying to counter any potential negative impacts from trade uncertainty and slowing global growth. With no pushback from the Fed, the money and bond markets had boxed the policy makers into a corner. Despite the fact that U.S. financial conditions were actually easier prior to this meeting than when the Fed started raising rates at the end of 2015, there was concern that without a rate cut, conditions could have tightened. So, while you could say the Fed is back in data-dependent mode, it appears as if monetary policy is still leaning towards another rate cut this year. Continue Reading…

How many credit cards should you have?

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Photo by Blake Wisz on Unsplash

By Barry Choi

Special to the Financial Independence Hub

If you’ve recently walked into the mall, your bank or even the grocery store, there’s a good chance you’ve been asked if you want to sign up for a new credit card. Your first thought might be to say no since you’ve already got one, but with so many different credit cards that come with a variety of offers, it can be tempting to apply on the spot.

You may also be wondering “how many credit cards should I have” in the first place or “does it hurt me to have multiple credit cards?” There’s no straightforward answer so let’s take a look at when it does and doesn’t make sense to get another credit card.

When it makes sense: Pros

Getting another credit card can actually improve your credit score since it’ll increase your credit utilization ratio, which is one of the major factors that determines your credit score. Your credit utilization ratio is based on the amount of credit you’re using relative to the amount of credit you have available to you.

Let’s say you have a single credit card with a limit of $1,000 and you typically charge about $600 on it; that would give you a utilization ratio of 60%. If you applied for a new credit card and you were given a limit of $1,000, your overall credit utilization ratio would drop down to 30% since you now have access to a total of $2,000 in credit. As a general rule of thumb, your credit utilization ratio should be no more than 30%.

You may also want to maximize rewards by using a combination of cards for different spending categories or scenarios. For example, it would be to your benefit to use one of the best Mastercards in Canada if it earns you more points on grocery or gas spending compared to a Visa card. Alternatively, if you currently only have an American Express credit card, you could also apply for a credit card with no annual fee (Visa or Mastercard) and use it only where your Amex isn’t accepted. Since the card has no fee, you won’t need to worry about paying an annual fee on two different cards.

Sometimes it also makes sense to apply for a new credit card for a specific reason. Let’s say you like to travel, a card that comes with no foreign exchange fees or has airport lounge access would be pretty handy to have. You could also offset the cost of your trip by applying for one of the best Aeroplan credit cards, since the welcome bonus could be enough points to pay for your flight.

The above are great reasons why you should have more than one credit card, but that only applies if you’re responsible with your spending. In other words, if you’re always paying your bills in full and on time every month, then there’s nothing wrong with getting another credit card.

When it doesn’t make sense: Cons

The tricky thing about getting another credit card is that you could be tempted to overspend since you’ll have access to more credit. Studies show that people spend more when using credit cards instead of cash, so having access to a higher credit limit or multiple credit cards could potentially result in more spending.

More credit cards also means having to stay on top of more bills.
Continue Reading…