On average, Canadians carry $3,720 in credit card debt according to TransUnion. Statistics also show that 70 percent of Canadians pay off their credit card balances in full each month, as reported by an Abacus Data survey in 2013, which adds that, about 14 percent manage to submit the full balance several months of the year.
Clearly, many credit card users in Canada are using the payment tool advantageously. Perhaps the rest of us need to brush up on proper usage or at least figure out how to stop making costly errors when managing our credit card payments.
One thing not to be overlooked is quite simply making your payment on time. While this is basically common sense in our world of paying bill after bill, many people either skip or forget to pay. That's a huge mistake. You not only incur interest on the amount charged but you have a late payment fee on top and a ding on your credit history to boot. The friendly letter from your card issuer reminding you to pay is often accompanied by a different warning to the credit card bureaus. A few of these warnings could lead to the outright cancellation of the card and a major dent in your credit score/report, which can take years to rebuild. If you have to, set up a direct debit payment through your bank or at least get a bill reminder sent to your mobile phone using dozens of free financial apps available, such as Mint.
Making a minimum payment is another common behaviour among credit card users. Sure, it can be a $10 token payment when funds are tight, but remember that it does not make any significant difference to paying off the principal and your overall balance will increase as interest charges are tacked on. If you typically carry a balance on your credit card, look carefully at your monthly statement especially focusing on the length of time it would take to pay off the debt in full if you contributed only the minimum payment required each month. That alone will convince you that you need to increase your payment amount, cut back on your monthly charges or seek a credit card that charges a lower rate of interest. It doesn't hurt to ask your credit card issuer for a drop in rates or if your situation demands it, seek out a preferable payment arrangement.
Regularly using your credit card to withdraw cash is another blunder worth noting. Of course, there are times when an emergency cash infusion is needed but if this has become routine, you need to refrain from it. There's usually a cash advance fee for the service and interest often starts accumulating immediately once the money is obtained, unlike the grace period you enjoy with normal credit card transactions. What's worse is that these advances often come at higher levels of interest and unless it's your intention to pay it off quickly, it could significantly increase your risk of falling behind on your credit card payments. Should you find yourself in a deep financial crunch, consider discussing this with an expert at your local bank to discover better payment options, examine the possibility of a small loan or even check out a debt consolidation scheme, if that's more appropriate.
Having too many credit cards certainly could present a challenge to many consumers. While enticed by fancy rewards or even more travel miles, one should consider the necessity of another card, the potential to get deeper into debt and the annual fee charges if applicable. For some individuals, having more credit cards can work favourably by lowering their credit utilization ratio--the measure of how much available credit you're actually using. After credit history, it's the second most weighted component on your credit score. But that could quickly and easily turn to a disadvantage. What if you end up spending more without keeping up with payments and ramping up your credit card balances in the process? Also, were you under consideration for a loan or mortgage, a lender might deem it a riskier proposition since the potential to run up all the cards does exist.
As we can see, a simple mistake or a common oversight can make the world of difference when managing your credit. It doesn't have to be complicated: monitor your spending, pay as much of your balance as you can on time every month and know how much you can afford before you put down the plastic.
