credit card debt

We are living in precarious financial times. The social and economic impacts of COVID-19 have been felt by all Canadians, many finding themselves deeper in debt.

In today’s podcast Jillian Taylor-Mancusi, Licensed Insolvency Trustee with LCTaylor, talks about one of the most common forms of unsecured debt – credit cards.

In this episode Jillian covers:

  • How credit card companies make money
  • Compound interest – calculating your daily interest revealing how much interest you are paying on the interest
  • What happens when your file is sent to a collection agency
  • Wage garnishments, statement of claim judgments

Federally regulated, Licensed Insolvency Trustees are knowledgeable in all aspects of debt management. Whether you need help with your budgeting or you are filing for Bankruptcy, you can be assured they will have your best interest in mind.

Wayne 0:04
Welcome to another edition of Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. My name is Wayne Kay and today we’re going to talk about credit card companies.

Guess what? They’re not your friends. No, not at all and to tell us more is Jillian Taylor-Mancusi joining me from LCTaylor in Winnipeg. Hi, Julian. Thanks for being here. Oh, credit cards, there’s one of those terrible words, but yet they want us to have a credit card. Everywhere I go, every store I go into, they’re saying, Hey, would you like a credit card?

Jillian Taylor-Mancusi 0:40
And you can get a discount. If you subscribe today. I know.

Wayne 0:42
And then I feel odd when I say No, I’d rather pay extra and not have the extra credit card – and they kind of give you the look. But doesn’t it seem weird that we’re saying no, but then having to pay more.

Jillian Taylor-Mancusi 0:56
The trick to that is we live in a society where we think that credit cards are our friends. So for example, you have your credit card, you have somebody to go shopping with, somebody to go out for dinner with, somebody to go on vacation with. So you think that the credit cards are your friends, but they’re not. They’re only your fickle friends. Because they want to be paid back.

Wayne 1:21
Right. And think of how early they start giving you credit cards. There’s, you know, as soon as you get into – I think my kids had them before they left school.

Jillian Taylor-Mancusi 1:30
Really, I know my daughter got one shortly after her 18th birthday. And she was just starting University. Wow.

Wayne 1:37
I think it must have been right about them too, as well. It was when they were just finishing up. And we figured well, they need to learn how to use them responsibly – so they didn’t rack it right up. At the start it was a very small limit – $500 for the student credit card. And that’s the beginning. And it’s okay, when you can pay them off. But let’s dive into how credit card companies make money, which really isn’t that big of a secret.

Jillian Taylor-Mancusi 2:05
How credit card companies make money is really off something called compound interest. What compound interest is, is interest charges that are added to the principal. So really, you’re paying interest on interest, and the debt is quickly growing.

I have an example, which really illustrates how this compound interest works. You have a credit card and you have $5,000 on it. Say your annual percentage rate is 19%. Well, the key is to take that 19% and figure out what your daily interest rate is. If you do the math, that works out to $2.60 a day. That means the interest on the first day is $2.60. So by the second day, your balance is now $5,002.60.

But the key to that is, the next day the interest isn’t on that $5,000. It’s on that $5,002.60. So you’re basically continuing to pay the interest. And until the whole amount gets paid back. Now, if you paid the whole balance by your due date, which is usually anywhere between 21 and 30 days, no problem, you’re not paying the interest. But if you don’t, that’s where they’re making the money, because it’s not just that annual interest rate of 19% that you’re paying, they’ve calculated it down to daily. And that’s all in that small print.

Wayne 3:28
That’s crazy. It’s almost illegal. But it’s not. Like it’s insane to me that they can do that at such incredibly high rates – 21, 22, 23% for most cards.

Jillian Taylor-Mancusi 3:42
Yeah, the scary thing is that interest rates on credit cards can go up to almost 30%. So if you take a department store card or something like that, you’re paying close to 30%.

Wayne 3:53
Okay, so what did you teach your kids?

Jillian Taylor-Mancusi 3:55
Pay your balance in full every month. Make sure you pay it before the deadline, because that’s the key. You pay one day short, you’re starting to pay the interest.

Wayne 4:04
Really? Okay, that’s a very good one too, because a lot of people I’ve heard say they wait till the very last day when it’s due. But I never do that. Because if something were to happen, my internet goes down, whatever, and I can’t make that final payment. That’s a very good point. But all of a sudden, they start charging you the very next day.

Jillian Taylor-Mancusi 4:21
Right, exactly. So make sure that if you’re going to have a credit card, you pay the balance in full every month, and you pay it before the due date.

Wayne 4:29
Okay, so let’s say you get your credit card going up, and all of a sudden, it turns out, you can’t make the full payments. And so you figure – well, I’m going to spread this out over three months, and I’m going to be able to tackle it then – hopefully we don’t have any more debt going on to that credit card. But say it takes three months or five months. What happens when all of a sudden something happens and you can’t make the monthly payments. What happens then?

Jillian Taylor-Mancusi 4:54
If you can’t make the monthly payments, that interest is going to continue to go up. Eventually when you don’t make payments they are going to send it to their collection departments, which at first can be pleasant. Oh, by the way, you didn’t make your payment this month. But then they get a little bit more aggressive as the calls move on and the collection agent becomes more demanding to get their money back. Your credit card is going to be stopped operations. So you’re not going to be able to charge any more on it.

But that interest is going to keep going, then eventually, that credit card company is going to send you something called a statement of claim. And what that means is they’re taking you to court. Now, once they go to court, what they’re trying to do is get a judgment against you – because with a judgment, there’s a couple of things they can do. They can sue any bank account if they know where you’re banking, or they can go back and get a garnishment order to garnish up to 30% of your gross wages.

Wayne 5:51
I used to do some credit information for loans, while I was selling boats, ATVs, and motorcycles and stuff like that, and having a credit card was one of the best ways for you to build credit. There’s the best way to build credit, but not paying your credit card is pretty much the fastest way to lose your credit.

Jillian Taylor-Mancusi 6:08
Exactly. So having a credit card is really handy to build your credit rating, because you make that payment on time every month, and you’re going to get really good marks on your credit report. But as soon as you start to fall behind your credit rating starts to decrease. Month by month, it’s going lower and lower and lower.

Wayne 6:27
Is there a right amount? Like should you have one credit card? What’s your advice regarding that?

Jillian Taylor-Mancusi 6:33
It depends on the kind of person that you are. If you’re somebody that has the credit card, and can put things on a credit card, pay it off every month, why do you need another credit card? If you are somebody who’s not paying your credit card every month, and it’s falling further and further behind, and your monthly minimum payment is growing, and you don’t have the cash flow – then those are the people that are generally going to have more than one credit card. And they’re going to continue using all the credit cards. And unfortunately, fall further and further behind.

Wayne 7:07
They start juggling – juggling the credit card. The reason a lot of people might have one or two is because they get you with the rewards. They get you with the – you can save money, whenever you shop at this store will give you this percentage off the very first time you use it. And you can pay it every single time you use it right here. But you slip up once and then all of a sudden things start sliding a little bit. What’s the biggest number of credit cards you’ve had to deal with – regarding maybe somebody who’s come in?

Jillian Taylor-Mancusi 7:41
Unfortunately, I can have pages of them. I’ve seen 20 credit cards. That’s not very often – and that’s something that catches the government’s eye and they’ll start to look into that file a little bit more closely – maybe call you in for an examination, find out why you had all these credit cards, what you did with them.

And unfortunately, having that number of credit cards can also signal another kind of problem like a shopping addiction, for example, or a gambling addiction. That’s the kind of thing that will clue us in to see what the reason for the financial difficulty was – if we see a lot of credit cards.

Wayne 8:23
So something that you do dive into, I guess you would have to.

Jillian Taylor-Mancusi 8:28
Say, for example, the reason for your financial difficulty was gambling, or another type of addiction, we want to make sure that the reason for your financial difficulty has been dealt with so that it’s not going to be something that’s reoccurring. You want to make sure that a Bankruptcy isn’t going to be a revolving door. If it’s a gambling problem, you want to nip that in the bud by the time you get your discharge,

Wayne 8:55
I had a family member who borrowed some money, I believe he lent it to a friend. That friend never paid back this amount of money, then of course, put it on his card. He stopped looking at credit card bills and didn’t even look at what he owed on these. And of course, they just went out of control and finally had to do the Consumer Proposal thing.

But I am when I finally found out that he was in this situation. I said, are you getting some kind of financial planning advice? Because there’s no point in going through this if you can’t fix what got you into the situation in the first place? And so I think that’s a critical piece is we don’t really get enough financial teaching do we?

Jillian Taylor-Mancusi 9:45
Right. In both Bankruptcies and Consumer Proposals, there are two mandatory counseling sessions. So if you’re going to go through the process, we’re not going to let you out of the process unless you come to those two mandatory sessions. So there’s a portion that you do with one of their financial counselors on staff. It also has an online component through the government website that you have to do, and there’s some homework. And it really tries to at least give you the beginnings of getting back on your feet again. Some basic budgeting, some future financial planning, giving you just at the tip of the iceberg. So if you want more, it’s available. But at least you know where to start.

Wayne 10:27
Here’s a question. And this is kind of a weird question, how do you avoid debt?

Jillian Taylor-Mancusi 10:33
You avoid debt by knowing where your money is going. And that’s done by basic budgeting. That way you keep track of how much money is coming in, where you’re spending it every month, try to put together a savings plan so that maybe you’re putting one or 2% of your income away every month, so that you have like a rainy day fund.

Or if you have to look at credit, make sure that it’s something that you can afford not just on your monthly cash flow, but long term. How long is it going to take you to pay it back? Can you afford to make the payments every month without having to rely on more credit to get you through? Now, we’ll just get back to the credit cards – about what we were talking about -if you only pay the minimum amount each month. What the credit card companies are doing now is they’re actually putting a little box at the bottom of the credit card bill that says if you only make your minimum monthly payments, it’s going to take you X number of years to pay this debt off. And I thought that was interesting. I just started noticing that recently.

Wayne 11:32
And isn’t it shocking to you that a $100 pair of jeans could end up costing you like $800.

Jillian Taylor-Mancusi 11:39
I understand that. But it’s really good to see that on a piece of paper. So you know, those 18 year old kids that are getting these credit cards, right into university or are able to see that as well. I think maybe that will help them realize that these credit cards are not their friends.

Wayne 11:55
I guess it’s kind of a tool for building your credit, but it’s definitely not friendly. Right. final words of advice for me regarding credit cards.

Jillian Taylor-Mancusi 12:03
If you’re gonna have a credit card, make sure you pay the balance in full every month.

Wayne 12:07
Terrific. Well, Julian, thank you very much for the information today. Oh, thank you. Yes, my guest today Julian Taylor Mancusi. And if you want to learn more, or schedule a free consultation with Jillian or her team, you could check out lc
And that’s it for today’s debt matters podcast. Make sure you do subscribe wherever you get your favorite podcasts from and of course, for more information, you can always check out

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About Jillian Taylor-Mancusi

Jillian is a Licensed Insolvency Trustee in Manitoba and Northern Ontario. She has been working in the insolvency field since 1992. A member of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), Jillian also serves as chair for Dressage Winnipeg.

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