Learn How To Build, Use & Re Establish Credit

  • There are millions of active Visa, MasterCard and American Express credit cards in circulation across Canada. You many even have one or two in your wallet, as the credit card has become the instrument of choice for many Canadian consumers.

    However for some, the costs associated with using their credit card can lead them to a troubled financial future. Understanding the fine print in the cardholder agreement can save money now and offset future difficulties. The first rule of credit card use – check your cardholder agreement for details.

  • While lenders have historically granted credit using the 4 C's or the 4 pillars of credit, an individual's credit report has become one of the most importing factors in lending money over the past couple of decades as creditors have relaxed their lending criteria and have introduced new lending models.

  • Have you just received your first credit card? Are you rebuilding your credit after completing a repayment plan? Maybe you have more credit cards than your wallet can hold?

    Learning how to use credit cards wisely, as part of an overall budget, will help you not end up in debt.  

How to Pay Off Debt | Getting Out of Debt | Canada

Budgeting and Money Management Tips

  • A lot of people wonder how much of their income they should spend on their home, vehicle, groceries, clothes, etc. Below are some guidelines to give you a general idea and provide you with a starting point for your budget.

  • Is the economic downturn causing you to consider your personal financial situation? You may be worried about losing your job or how much debt you have. Avoid a potential personal financial crisis; get back to basics with a budget you can stick to. Here’s how to start:

    Step 1: Set Realistic Goals

    Goals for your money will help you make smart spending choices. Ask yourself: What do I want my finances to look like in one year? Decide what’s important to you and start there.

  • Examine your own attitudes about money. Remember that children learn a lot about how to handle money by watching their parents. Be careful to set a good example – and don’t be afraid to admit if you don’t know how to do it. Now’s a great time to learn together!

  • Have you ever made a purchase and later regretted spending so much on the item or wondered why you even bought the item? Does this happen to you often? Unplanned spending to purchase things that you may or may not need is often referred to as "impulse spending." Using credit or credit cards for impulse purchases can contribute to a cycle of ongoing financial difficulty.

  • If you are facing reduced income, take steps immediately to bring your spending in line with the reduced level of income you're expecting. Many people wait several months before adjusting their spending. This can mean the difference between surviving the tough times successfully – or dealing with financial disaster later on.

    Here are some points to consider during this difficult time:

    Take Care of Essential Living Costs

    Pay for your mortgage, housing costs and food first.

  • It might be too late to save money for the holidays, but it’s not too late to make a plan for your holiday season. You may have already started some of your holiday shopping, but think about all of the purchases you still have left, including the actual gifts to buy, all of the trimmings, food, holiday clothing and travel plans.

    • Learn to make minor alterations, e.g. hemming, to get longer wear from an item
    • Mend items promptly ~ you will get more wear out of them and you won’t forget you have them (then buy more); this goes for shoes too!
    • If you have kids, spruce up a hand-me-down with new buttons or a new patch ~ then the item will look “new” again (works for your own clothes too!)
    • Launder items promptly to avoid stains ruining them
    • Wash with cold or cool water (fabric lasts longer & saves on hydro costs too!)
  • Make Wise Choices
    • Shop on a full stomach – you’ll buy less snacks and/or things you don’t usually buy (and only buy groceries, not gifts, at the grocery store!)
    • Go armed with a list – and stick to it (especially if your kids are “helping”)
    • Plan your meals for the week before you shop and then buy what’s on the menu – start with planning for 3–4 days if all week seems too much
    • Shop only once a week – you’ll tend to spend more if you stop at the store every day or several times a week
  • Not knowing for sure where your next pay cheque will come from, or if it will be enough to pay the rent and groceries this month, is one of the most difficult circumstances someone can find themselves in.

    If this is your situation, here are some points to consider during this difficult time:

    Take Care of Essential Living Costs

    Pay your rent and food first.

    Pay your utilities. Reduce or cancel any services that you don’t need right now.

  • Banking Basics
    • Educate yourself – money is important in all aspects of your life, now as well as later.
    • Have at least 2 bank accounts – one for savings and the other for your weekly spending.
    • Lower the limits on your bank cards and consider not having easy access to your savings account with your debit card. Use technology to help keep your money safe from yourself!
    • Keep your passwords and PIN numbers secret – no exceptions!
    Budgeting Basics
    • Change takes effort and can cause stress. Focus on what YOU can control and the changes YOU can make for yourself. This will minimize your stress and keep your energy pumping!

      Before you make any changes to your spending behaviour, identify the triggers that deplete your personal resources and energy and cause you to impulse shop. When you’re heading out the door, keep your TEMPO in mind:

    Credit Debt Consolidation, Financial Planning & Budgeting

    • Q: I want to pay off my credit card bill this year but to do this I won't have any money left over to start contributing to an RRSP. Is this a good strategy?

      A: While it always makes sense to pay off high-interest credit-card debt, there are advantages to taking a balanced approach. As an example, if your goal was to pay off a credit-card bill of $3,500 (with an annual interest rate of 19 per cent) in one year, you would need to pay about $325 a month to do it.

    • Q: My wife and I have been looking for ways to help our family manage our money better. We're doing OK, but with Christmas just around the corner, we don't want to end up in debt again after the holidays. Do you have any suggestions?

      A: It's great that you've been able to make some adjustments to manage your money better. Looking ahead is an important step, and you're wise to be planning now. This will make it easier to find the money to pay for holiday expenses without going into debt.

    • Q: I'm having trouble keeping on top of all my payments each month. I've heard about consolidations, but don't know what that really means.

    • Q: I've just graduated from high school and will be going to college in September. I have some money saved up from my summer job and I'm receiving a student loan. Do you have any suggestions on how I can manage my money and not be a "starving student"?

    • Q: We collect points on our credit card to help pay for our vacation costs but sometimes it can be hard to use them. I wonder if using points is actually a good deal.

      A: Credit cards that earn rewards can be a friend for one, but another's greatest foe. It boils down to how you use credit and manage your household spending.

      Here are some things to keep in mind as you choose which rewards to collect and how you earn the reward points:

    • Q: With a growing list of recipients, where do you draw the line on holiday gifts, so you don't seem cheap?

      A: With all the attention on finances and personal credit use, many people are looking at their needs and wants differently. Making budget-conscious family spending choices for day-to-day expenses is a great first step. Extending this to your Christmas gift-buying decisions is important as well.

    • Q: Is it better to buy a cell phone and then choose a monthly plan, or get a free phone with a plan?

      A: Cell phones aren't really free. A service provider will give you a cell phone provided you sign a contract and commit to monthly payments during your contract, which might be as long as three years. If you want the newest phone and greatest features, be prepared to pay more each month.

      When choosing a phone and monthly plan, consider:

    • Q: What is a good way to invest my old-age pension? I am still working and would like to find a place to invest it.

      A: Before anyone can effectively answer this question, they need to have a complete understanding of your overall financial picture. Here are some points to consider before you're ready to ask these questions:

    • Q: I never have any money left over after paying my bills to even think about financial goals. I'm frustrated because I know I have to do more than just think about my future. Can you help?

      A: It's not how much you make, but what you do with what you've got. Proper money management doesn't involve a magic formula to find more money; it simply means getting the most from the money you have.

    • Q: My family usually takes a summer vacation, away from home. And while we have a lot of fun, we usually come home broke, exhausted and not ready to go back to work. I’ve heard a little about “stay-cations” and that they’re good for my budget.

      A: Vacations away from home can cost a lot of money and energy. Staycations have recently become very popular because of the downturn in the economy and the higher cost of gas during the summer. A staycation is a vacation where you and your family get to relax at home and enjoy daytrips close to home.

    • Q: We started the fall with plans to spend less on convenience items, but now we're so busy we've gone back to our old habits. Our budget is going to burst if we keep this up -- what can you suggest?

      A: Many families start September with sweeping changes. But once the reality of everyone's busy schedules sinks in, many households go back to old habits and abandon new plans.

    • Q: Last week, I found out my wife has spent more than $10,000 in the last year buying “just stuff.” She charged all of the items on her credit card and has only been making minimum payments so I wouldn’t find out. I feel angry and hurt that she’s been doing this and not telling me about it.

    • Q: I'm not working and my employment insurance just ran out. Can I withdraw money from my RRSP until I get back to work?

      A: You can access money in your RRSP as long as the funds are not "locked in." There are strict rules about accessing locked-in funds. Your banker or financial adviser can provide you with more information.

    • Q: It's hard to believe that Christmas is less than two months away. What can we do to keep our holiday expenses more manageable for our family this year?

      A: Even if you haven't been able to save money for the holidays, it's not too late to make a plan for your holiday season.

      Talk to family and friends about a holiday plan. What is financially reasonable for everyone, or is this the year to start new traditions?

    • Q: I've just moved into a new condo and everything looks great except my old furniture. The store down the street is advertising no interest and no payments for 12 months on new furniture. What's the catch?

    • Q: My 19-year old son has charged his first credit card to its $500 limit and hasn't made even the minimum payment in more than four months. He's getting calls asking for payments. I'm worried about what this will do to him in the future.

      A: This is a question we hear often and you're right to be concerned about your son's future. Credit is a privilege, not a right, and he will have some work to do.

      Derogatory information on a person's credit report will lower their overall credit score and make it much harder to obtain credit in the future.

    • Q: We can't afford to go on a vacation this summer. I've heard about 'staycations' but I'm concerned that doing one will just end up feeling like more time spent at home. How do you turn it into a real vacation?

      A: A staycation can be a great way to enjoy a vacation while saving money on transportation and accommodation. Whether you are travelling 5,000 kilometres or in and around your city, the key to having a memorable vacation is planning.

    • Q: Every year we plan to make a few purchases during the Boxing Day sales. Are the deals really worth it?

      A: The sales and offers at this time of year can look very enticing -- and so they should, as retailers look to further enhance their bottom line. But the real bottom line you need to consider is your own. Ask yourself a few questions as you think about what you might still like to buy over the holidays:

    • Q: We buy a lot of gifts for people in our extended family throughout the year. They seem happy with the gifts we give, but that happiness is short-lived. What other gift choices should we consider?

      A: You're right to notice that the happiness from tangible gifts rarely lasts. This is why many families have chosen alternatives to traditional gifts for holidays, birthdays and special times throughout the year.

      Consider these alternatives:

    • Q: I'm going broke keeping my old car running. I need a new one -- should I lease or buy a new car?

      A: Before leaving your driveway in search of a new car to lease or buy, determine what you can afford each month.

      Start by looking at your income and existing monthly and seasonal expenses. Over and above your loan or lease payment, you need to consider more than just fuel and insurance.

    • Q: I got engaged over the holidays and we're starting to plan our wedding. What suggestions do you have to help us keep costs reasonable?

      A: Congratulations on this next big step in your lives! It's an exciting time charged with emotions and expectations. Start by deciding what the two of you want for your big day and what you can afford.

    • Q: I've got three kids going back to school in a month -- how can I manage back-to-school expenses so that I can buy them what they need and want, without going into debt on my credit cards?

    • Q: My girlfriend and I have been living together for two years. Everything is in both of our names, except our bank accounts, but we rarely ever talk about money without fighting. What can we do so that our relationship doesn't become a financial casualty?

      A: Money is one of those topics that can create tremendous stress and tension in a relationship, especially if you have different views on how to spend and save. Our attitudes toward money affect the choices we make. Managing money together is about more than just paying your bills on time.

    • Q: My husband may be laid off from his job. I stay at home and look after our kids and now I’m worried about how we’ll manage without his paycheque. What can you suggest?

      A: When facing reduced income, many people wait too long to adjust their spending and end up creating a financial disaster. Take steps right away to bring your spending in line with a lower income level. Apply for EI or income assistance as soon as possible.

    • Q: I've received another email for sunny vacation specials that look like a great deal. My friend and I are considering taking a week and going, but are these deals too good to be true?

    • Q: My sisters and I usually go down to the U.S. to shop during their Thanksgiving weekend. A friend of mine thinks it's cheaper to buy in Canada. Is she right?

      A: The American Thanksgiving weekend, or "Black Friday" as it is often referred to, is the day when retailers start to turn a profit and be in "the black." Many Canadians will cross the border during this weekend to make their Christmas purchases.

    • Q:We are looking at buying a new TV for the family this Christmas and are trying to decide if we should spend the extra money on an extended warranty. Is it really worth it?

      A: Like a lot of things in life, this is not a simple yes-or-no answer. With manufacturer warranties shrinking, you need to decide if it makes sense to pay for additional coverage up front or put some funds aside just in case you have to fix the TV later.

      Here are some points to consider before handing over your hard-earned money:

    • Q: I owe about $10,000 on my credit cards and I've been making the minimum payments. Why does it seem like it will take forever to get out of debt?

      A: Making the minimum payments on your credit cards will keep you in debt for a very long time. Based on a balance of $10,000, an annual interest rate of 18.9 per cent, and only making the minimum payments required (2.5 per cent), it will take you more than 30 years to pay off the debt. Along the way you will pay more than $16,000 in interest.

    • Q: Each year I make a New Year's resolution to tackle my credit card debt. I never seem to get anywhere. Can you help me?

      A: A plan to tackle your credit-card debt is a great New Year's resolution. A realistic plan will help you shed the weight of your bad debt and help you get on track again.

      Start by listing how much you owe and how much interest you are paying. Then prioritize your obligations; mortgage and vehicle payments are typically at the top of the list.

    • Q: I like to be out and about with my family and friends during the summer months. I’ve noticed that I reach for my credit card more and more often and I’m dreading what my credit card bills will look like in the fall. Can you offer any suggestions?

    • Q: Mortgage rates are still low and house prices keep going up. Is now the time to buy? And is it better to buy as big as you can?

      A: It's best to determine how much house you can afford and if it fits your lifestyle before buying a home. Many home buyers don't fully realize how much it costs to buy and pay for a home. You have to consider all of your costs up front (such as moving, taxes and legal fees), plus the ongoing costs, and the impact these extra expenses will have on your lifestyle.