Ever wonder how other Canadians use their credit cards and how your credit habits match up?
According to the Canadian Bankers Association:
- 58% of Canadians pay their credit card balance in full each month
- There are 68.5 million Canadian Visa and MasterCard cards in circulation
- 72 per cent have a credit card with reward points; 82 per cent of respondents indicate that rewards are an important criteria for selecting a card
- Credit cards account for 5 per cent of household debt in Canada
Here are some points to consider to make sure that you use your cards wisely and stay on top of debt.
Make sure that rewards are rewarding
It can be tempting to use a card to get reward points, because you feel like you are getting something for “free”. However, if you are spending money simply to gain points, it isn’t very rewarding- or free. Even worse, if you make purchases for points and don’t pay off the balance, you’ll end up accumulating interest.
“Using rewards points can be a great way to get more mileage out of your budget, but you’ve got to strategize your purchases. Also be aware of any restrictions around redeeming and using points, which could limit your opportunity,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
Credit cards don’t extend your budget
Credit cards are convenient, but you should only ever use them for spending that is already earmarked in your budget. It is common for people, especially when money is tight, to use credit cards as a means of extending their spending power.
“You’ve got to remember that if you are using credit cards to spend beyond your means, you won’t be able to pay the balance off before it accrues interest. If you are one of the households in Canada that is carrying credit card debt, you are literally paying more for every purchase than they are charging in the store because of the interest charges. It doesn’t take long for the interest to snowball and your debt to get out of control,” says Schwartz.
Does it even make sense to use your credit card?
The short answer is that if you can’t afford to pay your balance in full, you should try to use cash instead of credit, so that you avoid accumulating interest. However, if you are making a bigger purchase that will require financing for a longer term, lines of credit often have lower interest rates, so they may be a more sensible option.
Read the fine print before you sign up
If you are going to tackle any financial literacy task, make it to fully understand how to read your credit card statement and reading the fine print on “special” credit card offers.
For instance, sometimes credit cards offer an introductory rate to entice you to sign up. Once that rate expires, and the “good deal” is gone, you’ll be paying substantially more. Plan to pay your balance before that promotional period expires. Also be on the lookout for hidden fees.
Credit card does not equal emergency fund
Some people have a credit card for emergency use. This is fine, but don’t have a credit card in place of having an emergency fund. It’s often hard to repay debt that you’ve accumulated in reaction to a financial emergency, which is why a savings fund is so important.