We live in a world of constant disruption, credit card interest rates excepted.

Most cards have for years carried an interest rate of 19.99 per cent, a few have been pegged at 20.99 and there are “low-rate” cards at 12.99 per cent. In stark contrast, after the pandemic drove interest rates down to historically low levels earlier this year, a savings account paying 1 per cent is a big win.

Reward programs offering travel points and cashback are what people talk about with credit cards today, not the painfully high cost of carrying card debt. But in the pandemic, credit card interest rates are a worsening problem for one in five people.

Data provided by the market research company Ipsos show that 21 per cent of people had an outstanding balance on their credit card in October, down from 28 per cent in each of the three previous years. This good news story flows out of people spending less in the pandemic and thus finding themselves able to pay down their card balances.

But those with balances are in much worse shape today. The average outstanding card debt in October was $5,305, up almost 69 per cent from the average debt balance of $3,141 in 2019.

credit card interest calculator designed by the federal Financial Consumer Agency of Canada shows that, at 19.99 per cent interest, if you made minimum payments on card debt of $5,305, it could take 21 years and four months to pay what you owe and cost you $6,364.73 in interest. If you could add $50 to the minimum payment each month, your payback period is “just” 5½ years.

The biggest struggle with card debt is happening among people aged 45 to 54 – Gen Xers, in other words. Twenty-seven per cent of them have card debt, but that’s not the worst of it. Ipsos says 15 per cent of people in this group owed more than $3,500 on their card, compared with a national average of 8 per cent who owed this much.

One explanation is that Gen Xers are at a stage of life where they’re juggling spending obligations for kids and mortgages, along with rising lifestyle expectations. The cars, vacations and household furnishings that seemed fine when the children were babies may no longer suffice.

Reward programs help explain why people of all ages were using credit cards more, even before the pandemic made us more nervous about handling cash and left us buying more things online as opposed to in-store.

The Canadian Payments Association reported last month that the number of credit card transactions jumped 16 per cent in 2019, surpassing use of debit for the first time ever. The payments association says that in the pandemic, 32 per cent of people say they’re using credit cards more, compared with 25 per cent who report using e-transfers more and 21 per cent who are using debit cards more.

People favour credit cards for security reasons as well as rewards. You can dispute a fraudulent charge on a credit card and have it reversed before any payment is due, whereas debit fraud must be addressed after your money has already disappeared.

Even so, debit is the better option for households where credit cards are used to support a lifestyle where spending may exceed income. With debit, there is no unwieldy monthly bill for odds and ends you bought weeks earlier.

You can get some rewards from using a debit card, by the way. Royal Bank of Canada and Petro-Canada have a deal where you save 3 cents a litre on fill-ups when you use an RBC debit (or credit) card. Bank of Nova Scotia’s Scene debit card helps you earn points you can use to pay for movies and Bank of Montreal has a debit card that earns Air Miles points.

Personal finance these days is numbers obsessed – how much our houses are growing in value, how much our investments are rising and falling, the rate on our mortgage or our savings account. More awareness of credit card interest rates would be helpful, even as we recognize that card balances are at least partly rising by necessity in the pandemic and not wholly because of financial illiteracy.

The Globe and Mail, December 7, 2020