If your budget is tight, it can be tempting to only make the minimum payments on your debts. Credit card minimum payments in Quebec are regulated. Credit card contracts entered into since August 1, 2019 require a minimum payment of at least 5% of the balance due. As for contracts concluded before this date, the minimum percentage increases over time, reaching 4% on August 1, 2023 and 5% two years later.
To help out, we’re giving you an in-depth look into standard minimum payment requirements. We’ll also run through why you should pay more than the minimum balance whenever possible, as well as how your credit card payments impact your credit score.
How to calculate your minimum payment
On top of provincial regulation, each credit card company can set its own minimum payment rules. Some have higher requirements than others. To ensure that you fully understand how the credit card of your choice works, we highly recommend reading its terms and conditions.
Your monthly statement shows your minimum payment and its due date. You can also find this information in your account on the issuer’s website.
To better understand the impact of the minimum payment, you should know that it makes you keep a balance from month to month, which is subject to a high interest rate. Use a credit card repayment calculator to help you visualize its impact. For example, a monthly balance of $2,200 on which you would only make the minimum payment of 4% would cost you approximately $3,800 (including nearly $1,600 in interest charges) after 10 years. At 5%, we are talking about a total bill of $3,325, including $1,125 in interest, and your purchase is settled more quickly, in 8 years. For an additional 1%, you would save nearly $500 in the end!
Credit card minimum payment in Quebec: The legislation
In 2017, Quebec adopted measures to prevent debt among its residents. The minimum payment increases slowly, year over year, so eventually it will be at least 5% of your statement balance. All contracts entered into since August 1, 2019 require a credit card minimum payment of 5% (or more) of the balance shown on your account statement.
If you already had a credit card before August 1, 2019, and the minimum payment was set at less than 4%, the minimum payment increases on August 1 of each year. In 2023, it increases to 4% of the balance shown on your statement. As of August 1, 2024, it will increase to 4.5%, then to 5% in 2025.
Your credit card issuer also has the right to claim a higher percentage as stipulated in the contract. That’s why it’s always a good idea to read the terms and conditions of your credit card. This document will shed some light on how your credit card works and help you budgeting when your finances are tight.
Elsewhere in Canada
Since credit card issuers do not have to follow strict minimum payment regulations while serving customers outside of Quebec, it’s harder for other Canadians to figure out their minimum payments ahead of time. That said, the Government of Canada lays out two ways that companies can assess minimum payment requirements.
The first and most simple method is requiring customers to pay a flat amount, around $10, as well as to cover any accrued interest and fees. As such, if you carry a balance on your card, your minimum payment will be higher than someone who pays off his card in full each month, since you will also have to pay off the interest.
The second minimum payment calculation method is a bit more involved. Your credit card issuer may require you to pay a certain percentage of your bill each month, while stipulating that the minimum payment must always exceed a certain amount of money, usually around $10. In other words, if you have a credit card that calculates minimum payments at 3%, but requires at least a $10 payment each month, you will owe $10 on a $100 statement and $30 on a $1000 statement.
Advantages to paying more than the credit card minimum payment in Quebec
Credit cards can be a major boon in an emergency, allowing you to finance necessary purchases that you simply wouldn’t be able to afford otherwise, or to earn rewards. But they can also make it tempting to only meet the minimum payment requirements. This can lead you to go into severe debt and lower your credit score. That’s why it is a good idea to pay down as much of your credit card as possible each month. If you do, you will benefit in other ways as well.
Save money in the long run
Even if you ignore the other potential benefits, paying down as much of your credit card as possible is a great idea because it will save you money in the long run.
The card issuer risks being stuck with your unpaid bill. The lender passes this risk to you in the form of a high annual interest rate. Rates are usually between 19% and 24%, unless you apply for a low-interest credit card. If you have a weak credit score or no credit history, your issuer may charge you an even higher interest rate.
A high interest rate isn’t necessarily a problem if you pay off your credit card balance in full every month. However, it adds up if you only make partial payments. Since interest compounds, you’ll start to receive exponentially larger bills, which become harder and harder to pay off.
Increase your credit score
The other major perk to regularly paying down as much of your credit card as possible is increasing your credit score. There are several ways a credit card can affect your score. If you apply for a credit card, the card issuer conducts a hard credit check. This lowers your score slightly. On the other hand, once your application is approved, the simple fact of having the credit card gives a boost to your credit score.
But beware! Part of your credit score reflects your payment history, i.e. whether or not you make adequate payments on time. Credit reporting agencies like TransUnion and Equifax check how often you pay your bills and if you’ve ever missed a payment. That’s why paying your balance in full before the due date always helps increase your credit score. Plus, by paying off that balance in full, you keep your credit utilization ratio (debt ratio) low. Ideally, you should not use more than 35% of your credit limit.
Why would you want to increase your credit score, you might wonder? Because a higher score will give you access to lower rate loans, credit cards with perks, and simply boost your financial life in a good way.
Build strong financial habits
Paying as much of your credit card bill as possible each month leads to stronger financial habits. If you’re paying back as much money as you possibly can, you likely have a thorough knowledge of your finances. You have to examine your monthly income and expenses to know exactly what money is coming in and out of your pockets. Plus, it’ll be harder to financially overextend yourself. Why? Knowing you have a short time to come up with the money might stop you from splurging.
Get greater financial flexibility
When you eliminate as much high-interest debt as possible, a beautiful thing takes place: financial flexibility. You can divert money elsewhere. This is something you can achieve by consistently paying more than your credit card minimum payment in Quebec. Plus, in case of emergency, you will find it much easier to access funds through credit cards or other loans thanks to your good financial health.
FAQs about credit card minimum payments in Quebec
In Quebec, minimum payments have been regulated since 2017. Each year, they increase by 0.5%. On August 1, 2023, the credit card minimum payment is 4%. Eventually, the minimum payment will be 5% (on August 1, 2025). Also note that your credit card issuer has the right to ask for a higher minimum payment, as long as it is written in the contract. This is a condition to consider when choosing a credit card.
In the rest of Canada, there are two methods of calculation. Your minimum payment is either a fixed dollar amount plus interest and fees, or the greater of a fixed dollar amount and a percentage of your outstanding balance, usually 3%.
In Quebec, your minimum payment will depend on the date and the terms of your contract, as well as the provincial regulation in place. You can expect to pay 4% or 5% of that $5,000 balance: $200 or $250.
If you only cover your credit card’s minimum payment, you’ll be subject to lots of interest fees. In most cases, only paying the monthly minimun will cause your interest to build up until it is almost as high as the principal.
From a credit standpoint, making minimum monthly payments is technically okay, though you’d be on a very slippery slope. It could become much more difficult to manage your credit utilization in subsequent months. This can pose a serious threat to your credit score.
If you can’t meet your credit card’s minimum monthly payment, your credit score will take a serious hit. The longer you wait to pay the minimum, the lower it will sink. Generally, you’ll also be charged a missed payment fee. In some cases, your credit card’s interest rate will increase. If you do not pay over a longer period of time, your credit card might even be paused.
That being said, if this is the first time that you haven’t been able to make a minimum payment, or if you’ve been a long-standing customer with a history of responsible financial behaviour, your credit card issuer may be willing to negotiate. After all, the issuer knows that emergencies happen. If you realize that you won’t be able to meet your minimum payment, call the issuer and ask to negotiate. You might even be able to defer payment for a month or two. There’s no guarantee that the issuer will say yes, but it’s worth a try.