We all want to be better money managers and Canadians, and for the most part, we are pretty good at it. Then an offer comes along that you can’t resist and before you know it, that great offer or tool that was once helping you, has become a trap.
- Credit cards. For some of us managing a credit card is more difficult than getting one. Did you fall in love with that irresistible piece of jewelry on sale or have to get that new tech toy? So you purchase it with your credit card. Did you know that consumers tend to spend more on credit, which can really mess up a budget and end up costing more in the long run if the balance isn’t paid each month? Carrying a balance means interest charges, so the longer you carry a balance, the more interest gets tacked on. If you only pay a little each month then any savings have just been negated. It’s easy to spend with a credit card, but may be harder to pay back. Solution: Credit cards can be a useful tool if used properly by paying off the balance each month. Some households use credit cards as a budgeting tool – they charge every purchase, including groceries and pay bills to receive loyalty points and/or other rewards – and have one statement each month. The key is not to spend more than you can afford to pay back – easy to say, tough to do.
- Lines of Credit. Ahh, who wouldn’t want a line of credit (LOC)? These days LOCs are in fashion and not having one may have people looking at you in a strange way. It just makes everything so easy, doesn’t it? You use your debit/credit card and if your bank account is short, the line of credit just kicks in. The interest rate is low, for now, and you only have to pay the interest off each month. Alarm bells should be ringing right now. Interest only? So when does the principal get paid? Exactly! Banks love that never-ending feature. What may have started out as a nice deal, ends up being a difficult problem to fix. If interest rates start to rise, the many households could be in trouble. Solution: The Wealthy Barber author David Chilton said that credit lines can be an excellent financial tool for disciplined people. “The other 71.9 per cent of Canadians, however, should be careful. Very careful.” So pay it off. If it’s in the form of a mortgage, get a mortgage instead. Or turn it into a loan. Don’t use it as an ATM.
- Student Loans. This is a worthy loan that can easily turn into a debt trap. Most students can expect to graduate with more than $20,000 in debt and can take up to ten years to pay back – not a great way to start a life. And since millennials are having more difficulty finding jobs, paying that debt can be even more onerous. Graduates are expected to start paying back their loans six months after completing their studies. In addition to those loans, students also have lines of credit and credit cards – a triple whammy. Solution: Save, try to get more from parents; work more during off times, be frugal, or try to get a scholarship – you don’t always need the best grades. Check out com. You might be able to get employer reimbursement if already working. Did I mention save?
- No Money Down plans. It might be tempting to defer payment. Buy furniture interest –free and make no payments for two years. Then what happens? Well, if you don’t have the balance at the end of the term, you start paying monthly at a ridiculously high interest rate. The no-money-down trap is simply another way to get you locked into making long-term payments on stuff you should be paying cash for. Solution: Save up some cash and put all the money down. Or, if you’re disciplined, put aside a monthly amount so when the term is up, you do have the money.
- Payday Loans. Eek! If you haven’t heard about this little debt trap, then you’ve been living on another planet. It’s easy to fall into the trap, though, an emergency comes up, and you don’t have enough money to cover the expense so you opt for quick cash. Don’t do it –even with the new rules you’re still paying over 60 per cent interest and ridiculous fees. If you’re able to pay that back in your next pay cheque, you still might not be able to meet your financial obligations sooo… you get another loan, and around it goes. Solution: Anything else, borrow from friends or family or sell some stuff.
- Gym Memberships. It’s not so much the initial monthly membership fee, just make sure to read the fine print, it’s the fees for other services offered at the gym. Do you like yoga – buy ten classes and save. Enjoy spinning? Purchase ten classes and save. The problem is that many end up buying the packages and don’t use them. Solution: Pay-as-you go for a month, if you find you love the classes, and are going often, then opt in for the 10-class deal. If not, stay with the pay-as-you-go.
Not sure what is affecting your credit score? Contact the #MortgageGirlca today and put her 35 years of experience to work for you. #benefitfromexperience. Former banker turned #MortgageBroker. Contact her today: 780-433-8412, Email: firstname.lastname@example.org . Follow her on Facebook (mortgagegirl.ca) , Twitter (MortgageGirlca) or read more at her blog (mortgagegirls.wordpress.com)