You may have read reports that nearly half of Canadians (48%) are spending more than they did last year although 60% have the same annual income. One in four Canadians were using credit cards to cover expenses between paycheques. Canadians surveyed for Credit Education Week (November 12-15) gave these reasons for their less-than-ideal credit use:
- Not sticking to their monthly budget (33%)
- Needed to make basic ends meet (29%)
- Paying for family member expenses (13%)
Half of the Canadians surveyed said they'd feel ashamed if required to talk about their monthly budget challenges with a financial advisor. Credit Canada's CEO Laurie Campbell said, "there seems to be shame associated with the failures that made us wiser with money."
Should You Use a Credit Card to Make Ends Meet Between Paycheques?
Only as a last resort, financial advisers say. While you can use cash back credit cards to earn money with each purchase, using this type of credit card requires financial discipline. Pay these charges in full every month.
If you routinely charge groceries or gasoline between paycheques, you can't avoid being under financial stress. Credit Canada's survey found that one in three Canadians saw their debt rise by more than 20% over the past year. Eight percent of Canadians had more than a 50% increase in credit card debt over the past year.
How Can You Get Ahead Financially If You Must Use Credit Cards to Pay Basic Bills and Expenses?
Ups and downs in monthly income may be a reason some Canadians are using credit cards to bridge the gap between paycheques — also called income volatility. One way to overcome income volatility is to set a limit for your monthly expenses that don't exceed your minimum monthly income level. On a week or month your paycheque exceeds the minimum level, pay yourself first. Deposit these funds in a savings account before you buy anything or pay bills.
You may also use online budgeting and spending tools. Your financial institution will usually provide budget calculators, bill payment reminders, and even account features that can warn you when you're making an impulse purchase. If your credit is good, you could also consider a lower or no-fee credit card to save additional money.
How Can You Establish a Financial Vision?
Credit Canada's survey asked respondents about their "financial vision." Over 80% of respondents said they had the ability to achieve their vision of being debt-free. Over 40% believed they would be out of debt in one or two years.
Decide what your financial vision will be for the short term (one to three months), medium-term (one to two years) and longer-term (five years). Write down your goals, making them more concrete and achievable. Start with simple goals like paying your savings first and eliminating credit purchases between paycheques because your bank balance is low.
Is one of your longer-term goals buying a home? Or buying a new car? Write it down and note the amount you must save monthly for a down payment. Paying your savings first becomes easier if you have a concrete goal in mind for that savings.
Learn more about mortgage rates and investigate credit cards with low-interest rates. You may also work to improve your credit score as your financial knowledge and ability increase. The stronger your financial vision and knowledge become, the less likely you'll be to have to use a credit card to pay for your basic needs between paycheques.