Rebuilding Credit in BC, Canada: The Importance of Prioritizing Debt
From unforeseen expenses and overspending to medical emergencies, income loss, and more, there are many reasons why Canadians find themselves in debt. Simply paying the minimum balances will only incur expensive interest charges. You can also damage your credit score in the process, making it harder to get approved for loans.
Understanding how to prioritize your debt repayment and following through with a plan is a better strategy.
What’s the Difference Between Installment and Revolving Credit in BC?
When developing your debt repayment strategy, it’s important to understand the differences between installment and revolving credit:
Installment credit accounts have a predetermined length and end date, which is called a term. The loan agreement also includes an amortization schedule that shows how the principal amount reduces as installment payments are made. Examples of installment credit include mortgages, auto loans, student loans, and personal loans.
Revolving credit accounts have a set credit limit, which is the maximum amount that you can borrow. As you repay the outstanding balance, you can borrow against the loan again. Balances can be paid in full at the end of each billing cycle or carried over from one month to the next. When you carry a balance on a revolving account, you will pay interest (unless it’s a 0% loan). Examples of revolving credit include credit cards, personal lines of credit, and home equity lines of credit.
To make the biggest impact on your credit score, it’s important to prioritize paying down any revolving debts first before tackling your installment account balances.