Credit cards can be a powerful financial tool that allows you to spend flexibly and immediately make use of big purchases, such as cars or houses, which you might otherwise have to wait years to afford. But you’ll want to spend wisely when making credit purchases.
From Toronto to Sudbury and farther beyond, many Ontarians struggle with debt payments. If you’re not careful, you may need consolidated debt counseling or other interventions to clean up a mountain of debt.
Here are a few questions to ask yourself as you use your credit card.
Could you pay for it with cash?
Anytime you’re considering a purchase with your card, try asking yourself this simple question. Chances are you cannot afford a pattern of spending where you keep on buying things that you couldn’t otherwise pay for with the cash you have on hand.
In a similar vein, avoid cash advances. These often come with terms that put the cash-strapped consumer at a disadvantage, such as higher interest rates and fees, and can make it all the more difficult to pay off long term debt.
How will you pay?
A credit card isn’t a license to spend like there’s no tomorrow. Debt is simply an exchange of something immediate for a future payment. You can only be responsible for a debt if you carefully read your statements to keep track of your spending patterns and have a solid plan for payment.
If you can afford to pay in full each month, if not, pay as much as you can afford, and try to make more than one payment every month. This can help you keep track of how much money you have to work with, and thus limit further spending. Whatever you do, don’t miss payments – that is a warning sign that your debt problems run deeper than you might think.
Were you already going to buy this?
Arguably the best use of a credit card is to pay for necessities. Utilities and other bills that need to be settled every month, and basic living expenses like food, can be paid for with a card that offers rewards or cashback.
In some cases, you’ll have to be firm and draw the line between necessity and luxury. Bread and coffee could be your breakfast staples, but a tub of ice cream is an indulgence. Don’t let these sorts of expenses sneak in under the guise of necessities.
What’s the big picture?
Often as we get older and advance in our careers and spending patterns, we’ll be offered multiple credit cards, with ever-higher limits and favorable interest rates. Remember that just because the offer is there, doesn’t mean you should take it. Banks don’t have the best idea of how you spend or what you can afford; you do.
Don’t trust that you have an accurate mental picture of your spending at all times. Take notes and plan your budget. Find solutions that address root causes. Instead of being tempted to transfer balance between cards, for example, ask yourself why you’ve spent so much, and figure out how to deal with that problem. Don’t be afraid to seek expert help if necessary.
Often overspending with a credit card comes down to having too much financial power without developing the discipline needed to budget and spend reasonably. Start by asking these and other questions and explore other options to learn and become a responsible credit card owner.
