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Out-of-Control Debt

As a young person, you have not had a chance to establish a good track record for managing debt. That means that lenders are less likely to lend you money and your options for borrowing are limited. The lenders that will offer you loans usually charge you very high interest rates.

If you don't pay attention to the terms and conditions of money borrowed this way, your debt load can get unmanageable very quickly. It's possible (and common in fact) for young people to get themselves into financial trouble that it then takes years to recover from.

This is the discussion icon. Debt "Horror Stories"

A quick Internet search will reveal many stories of people who have gotten themselves into serious financial trouble. Or maybe you know a story about someone whose debts got horribly out of control? (If you choose a story that you know about personally do not include names or personal details in the story).

Summarize a debt "horror story" that you have researched or know about personally. Include:

  • What age was the person who got into financial trouble?
  • What was the occupation of the person who got into financial trouble?
  • Describe the financial trouble that this person found themselves in (debt figures, etc...).
  • Was credit card debt a contributing factor to the financial problems?
  • What steps did the lenders take to get their money back?
  • Did they eventually get out of debt? If so, how did they do it? How long did it take?

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The Benefits and Dangers of Using a Credit Card

In 2014, 89% of Canadians possessed at least one credit card. Credit cards can be a convenient way to rent a car, book a hotel room or to buy something online. The consumer protections that they offer can make them good choices when purchasing certain kinds of goods or when you don't want to use a bank card.

The downside is that credit cards have very high interest rates. When you carry a balance on your credit card (ie., you don't pay it off every month), you are essentially taking out a loan. And that loan has a very high interest rate.


Using your credit card balance as a loan is a terrible financial decision. Credit card debt is bad because:

  • it has a high interest rate
  • you pay compound interest on credit card debt
  • interest can be compounded on a daily basis
  • credit card companies usually have very low minimum payments

Low minimum payments may seem like a convenience but by only making the minimum payment, you are ensuring that you will be in debt for years.

This is the did you know icon. Did You Know?

60% of Canadians do not pay off their credit card balance every month.

1 in 20 Canadians fear that they will never be able to pay off their credit card debts.

The Real Cost of Minimum Payments

Making only the minimum payment on your credit card greatly increases the amount of time it will take you to pay off your loan. This also increases the total interest that you will end up paying. Complete the activity below to see how your monthly payments affect your total interest charges.

This is the dropbox icon. Paying Off Your Credit Card

Imagine you received this credit card bill (If you need a refresher on how to read a credit card statement, you can review this interactive).

Your options for paying the bill range from:

  • Paying the entire balance.
  • Paying the minimum monthly payment.
  • Paying an amount between the minimum monthly payment and the entire balance.

The minimum monthly balance is calculated in different ways by different companies, but it is usually at least $10 plus interest charges and fees.

What should you do about this bill? To investigate each option, complete the worksheet Investigating Payments on a Credit Card Balance. This Credit Card Payment Calculator Tool will help you complete your work.

This is the did you know icon. Did You Know?

Credit card debt can become a major financial problem and can quickly become unmanageable. One option is to consolidate your debts. Visit the Government of Canada website to learn more about debt consolidation.

Payday Loans

Some companies offer loans to high risk borrowers at very high interest rates. This type of lending is often referred to as payday loans and often charges the highest interest rate legally allowed in Canada.

For example, a payday loan can charge $18.00 for every $100.00 you borrow over the period of two weeks. This is an effective annual interest rate of 469%!

This infographic shows how a $300 loan can balloon into a $400 debt in a matter of weeks.

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This is the dropbox icon. Informing Others About Credit Cards and Payday Loans

The government of Canda has created videos and infographics to inform Canadians about important financial matters. You can watch this video about using credit cards for cash advances to see an example.

Here is an infographic that conveys the same information.

Research potential financial risks that credit cards can present.

Some ideas for topics include:

    • minimum credit card payments
    • 'teaser' or introductory interest rates
    • late fees
    • cash advances
    • store credit cards
    • carrying a balance on your card

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