Things You Must Know About Your Credit Card

In today’s cashless society, credit cards offer convenience, rewards, and flexibility. But for many Canadians, they also open the door to hidden risks that can quietly erode financial health. Whether you're building your credit history or already juggling balances, understanding these pitfalls can help you stay in control and avoid costly traps.

🧨 1. Retroactive Interest on Full Balance

In Canada, if you don’t pay your full statement balance by the due date, interest is charged retroactively — not just on what’s left over, but on your entire balance, starting from the transaction dates. Even if you pay most of your bill, you’ll still pay interest on the full amount.

Example: Owing $2,000 and paying $1,900 still triggers interest on the entire $2,000 if it’s not fully paid.

🔁 2. Daily Compounding Interest

Canadian credit card interest compounds daily. This means your interest charges grow each day the balance remains unpaid — making it harder to catch up over time. The daily compounding rate is achieved by first using your average daily balance to calculate the amount of interest you will be charged and compounding periodically. (learn more)

⏳ 3. Loss of Grace Period on New Purchases

Once you carry a balance, you lose the grace period on new purchases. That means any new spending starts accruing interest immediately — even before your next statement is issued.

Note: The grace period only applies when your previous statement is paid in full by the due date.

🚫 4. Minimum Payments Trap

Minimum payments (often 2–5% of your balance) might keep your account in good standing, but they do little to reduce your principal. Paying only the minimum can stretch repayment over decades and cost thousands in interest.

⚠️ 5. Cash Advances: Immediate Interest with No Grace Period

Withdrawing cash from your credit card starts accruing interest right away — and usually at a higher rate than purchases. There are no grace periods and often additional cash advance fees.

💳 6. Multiple Rates and Confusing Terms

Different types of transactions (purchases, balance transfers, cash advances) often carry different interest rates. Many users unknowingly carry high-interest balances without realizing the distinction.

Always review your cardholder agreement for the Annual Percentage Rates (APRs) and how payments are allocated between different types of balances.

Video credit: Capital One

✅ Best Practices for Canadians

• Pay your full statement balance by the due date.

• Avoid using your credit card for cash advances.

• Use automatic payments to avoid missed payments.

• Read your monthly statement and credit agreement closely.

• If carrying a balance, consider a low-interest card or a structured repayment plan.

  
  

📌 Final Thought

Credit cards are a powerful financial tool — but only when used wisely. Knowing the hidden rules can help you avoid paying more than necessary and keep your financial goals intact.

Need help developing a debt repayment strategy or optimizing your credit profile? Let’s talk. I help clients across Canada build sustainable financial plans rooted in clarity and confidence.

Sources: https://www.rbcroyalbank.com/credit-cards/understanding-credit-card-interest.html, Scotiabank, CIBC, https://www.td.com/ca/en/personal-banking/products/credit-cards/understanding-credit-cards, https://globalnews.ca/news/6451352/td-credit-cards-compound-interest/, https://creditcardgenius.ca/blog/how-credit-card-interest-works-in-canada, https://www.rbcroyalbank.com/en-ca/my-money-matters/money-academy/credit-and-borrowing/understanding-credit-cards/how-does-credit-card-interest-rate-work/, https://www.canada.ca/en/financial-consumer-agency/services/credit-cards/credit-card-work.html, https://www.canada.ca/en/financial-consumer-agency/services/credit-cards/pay-off-credit-card.html, Capital One