If you ever plan to make a major purchase like a house or car, maintaining a healthy credit score is vital. Your credit score is a figure used by lenders to determine whether they will extend you credit. Not making your debt payments on time can be a costly mistake. When you do that, you risk dragging down your credit score. When this happens, you might have to pay a higher interest rate – or worse, you could be turned down for a loan.
TransUnion says Canadians are doing a better job of handling consumer debt. In its most recent report, the credit monitoring agency found there are fewer people making overdue debt payments by 90 days or more. The delinquency rate on non-mortgage consumer debt (which includes lines of credit, credit card debt and car loans) for the second quarter of 2015 is 2.58 percent. That’s down from 2.69 percent in the second quarter of 2014 and 2.78 percent in the second quarter of 2013.
While Canadians are getting better at handling their debt, the average balance owing continues to go up. Average consumer debt was $21,028 in the second quarter, representing an increase of $148 from the second quarter of 2014.
When we drill down the numbers, we find that lines of credit represent 35 percent of all non-mortgage consumer debt. This shows that Canadians are aware of the importance of making debt payments on time when they have the ability to do so, especially if they want to keep their pristine credit score intact.
The recent cut in interest rates has contributed to more Canadians making debt repayments on time. Lower interest rates means it’s easier for Canadians to manage debt, especially debt tied to prime rate like lines of credit and student loans.
The Bank of Canada has already cut the overnight lending rate two times this year. The overnight lending rate had been frozen at 1 percent for over four years, until it was cut to 0.75 percent in January and then 0.5 percent in July. The banks cut their prime rate, but not by the full 25 basis points. Most lenders cut their prime rate by between 10 and 15 basis points each time.
Interest rates aren’t likely to be this low forever, so it’s in your interest to take advantage. If you owe high interest debt like credit card or payday loans, it’s in your interest to repay it as soon as possible. There’s no point of parking your money in a savings account earning 1 percent interest when you’re paying 19 percent or higher in interest to your bank.
Are you struggling with consumer debt? A consolidated loan may be your answer. Feel free to contact our office and let us help you fully weigh your debt options.