How much do you owe? Honestly? Total of your credit card, line of credit etc?
See, one thing it took me some time to get used to in Canada was the free money. I’m not talking about the $52.76 the Canadian Revenue Agency would deposit in my account each semester as part of my GST refund (apparently, I was too poor to pay the government sales tax). Nope. I mean, I didn’t mind that of course. But I’m talking of the almost unlimited choice of credit cards and all the money you can borrow here in North America.
I came to Canada with just a French checking account ($3,000) and about $100 worth of Travelers’ Cheques. Five years later, I have a checking account and a saving account at Scotiabank, two credit cards from CIBC (a regular one and a student one I keep on forgetting to cancel) and I’m about to apply for a better Bank Of Montreal credit card (the air miles thing, you know). Oh, and let’s not forget about my Paypal account.
I should be ashamed of having money everywhere but apparently, I’m a small-time player. Or so said the last telemarketer who called to offer me a $10,000 Amex credit card. I gasped when I heard the figure. “But I don’t make that much money“, I naively admitted. “That’s why you should be interested in a higher limit credit card, ma’am. This is Canada“, he added, in his heavily Cantonese-accented English.
I said no. I said no to Amex, I said no to TD, I said no to a bunch of credit card companies that I didn’t know existed. I turn down great — not to mention unique — Sears card offer each time I buy a pair of socks (“but you could save 10% on today’s purchase!“). Canadian Tire wanted me to apply for their Options MasterCard last time I bought a tennis racket: “you have nothing to lose, there is no annual fee!“. I receive letters with pre-approved credit card, most of them enclosing a life-size paper credit card to show me what would my new accessory would look like: “Check out our new sunflowers design… or pick your own!“. I could even have gotten a Gold Card according to the last one I received. Oh, did I mention I make less than $25,000 a year?
“Why would I need a credit card?“, I first asked myself. See, in France, we don’t have credit card. We have debit card with possibly an overdraft authorization, that’s it. Let’s say you have an account at the “Banque de Paris”. You will get a card with a Mastercard/ Visa logo to the name of the “Banque de Paris” (with a micro-chip, not a magnetic stripe!). The Mastercard will be linked to your checking or saving account and you can only withdraw the money you have. The funds are drawn from your account in real time — no bill at the end of the month. Most people have an “autorisation de découvert” (overdraft authorization) on which the bank charges interest. But there’s no way the bank will let you go overdrawn for as much as most of the North American credit card let you borrow money. In France, money is lent to rich people. In North America, the more you owe, the more companies lend you: “with a slightly higher interest M. Jones, but you could get a much better limit“, “no credit, bad credit, call us!“, “shift your debt on our much lower interest credit card“, “sell your soul to the devil“…
But in North America, you need to get a credit card to get a credit history. And how do you get a credit card? With a good credit history! This is known as the “catch 22” by most immigrants who start from zero. I was lucky: I was still a student when I applied for my first credit card and I was approved very easily since my credit limit was only $500. I was told the basic of credit card:
- Ignore the “minimum payment due” and pay the credit card in full every month, the interest being around 20%
- Don’t use store credit cards. They might be easier to get but they also have the highest interests
- Don’t take cash advance out of credit cards. The rate for cash advances is much higher, and there is no grace period — you start paying interest right away.
The three evils credit bureaux (Equifax Canada, TransUnion Canada and Northern Credit Bureaus) must know everything about me by now. My passion for underwear from La Vie En Rose, the Virgin (nothing to do with underwear) cell phone that I recently bought, the places I live in, that I haven’t gotten a pay raise in two years… my willingness to repay a debt is assessed and calculated everyday.
Am I being way too anal for that country? After all, in North America, people are likely to answer the question “how are you?” by saying:
“Oh, same old same old, kids both going to university, I maxed out my credit card to renovate the house, I took a second mortage to buy a small cottage and I used my line of credit to get a new car. But hey, we’re going to holidays in Florida this winter! We need a break from all the financial problems.“
Hard to understand for a newbie to credit cards like me. But here are a few facts: in the USA, credit card debt is $915 billions, 640 millions credit cards are currently circulating and each person owns an average of four. And 14% of consumers own more than ten credit cards…
Who is to blame here? Credit cards companies sure are tricky and sneaky. Their interest rate is usually outrageous and you get charged for everything, from late payments to exceeding your credit limit, payment processing fee to cash advance, membership fees etc. The so-called “universal default” is another controversy. It basically allows creditors to check cardholders’ credit portfolios to view trade, thus allowing the institution to decrease the credit limit or increase rates on cardholders who may be late with another credit card issuer. Thus being late on one credit card can affect all your credit cards.
But we need to be responsible as well. Easy for me to say since I’m relatively new in the game, I know. But to me, credit cards are a way to build a credit history and a convenient way to buy stuffs on the web. You can occasionally collect points and be rewarded. They are not to buy something I can’t afford in the first place. This is not your money.
Credit cards are part of North America, a quick way to buy a share of the American dream, to fall for the latest craze, to feel rich once.
Buy now, live now and pay later… a North American addiction.