Credit Cards - Consumer Friend or Foe?
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.
Top 4 Credit Card Tips for Canadian Consumers
Here are our top four tips to ensure you're credit card spending doesn't come back to bite you.
Tip #1 – Minimum Payment Myth
Did you know...if you only make the minimum payment on your account, depending on how much you owe, it could take longer than your lifetime to pay it all off? Here's a calculator you can try, which will show you how much your debt is costing you. On each credit card statement, credit card companies are required to tell you how long it will take to pay your balance owing off if you only make the minimum payment. Look at that carefully and then figure out how much extra you can pay to avoid this trap.
Tip #2 – Partial Payment Interest
Did you know....if you pay less than the full amount owing on your statement by the due date, you will pay interest on the full amount? For example, your balance owing is $1510 and your payment is due today. If you only pay $1500, most cards will charge interest on the entire balance of $1510.
Tip #3 – Interest Rate Change
Did you know....some credit cards may increase the interest rate on your card if you are even one month in arrears? Check your statements carefully each month.
Tip #4 – Payment Due Date
Did you know... if you make your payment on the due date, the credit card company may charge you interest as if you paid late? In some cases, processing can take up to 5 days. Make a habit of paying your credit cards 5-7 days prior to the actual payment due date to be sure. If any errors occur, contact your credit card company and ask them to reverse any charges.
The Bottom Line
Your credit card will be your friend if you know what you can afford to charge and pay off each month because you have a budget. Using your credit card as an extension of your pay cheque means that you could be adding at least 50% to the cost of whatever you are buying. If the sticker price looks like a good deal, decide if it’s still a good deal with interest and fees added on. If it’s not, don’t buy it unless you have the extra cash to pay for it.