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The Perils of Credit

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For many young people, a credit card is a milestone and rite of passage that ranks alongside their first legal drink.

Credit cards can open a world of opportunity to those who are capable of using them responsibly. They not only provide an excellent opportunity to build credit, but also provide consumers with opportunities to earn points which can be exchanged for amenities, cash back, and travel, and put a hold on hotel rooms and rental cars.

While these are novel goals that help to facilitate the transition into adulthood, they are also desires that predatory lenders are all too happy to oblige.

A 2015 article published by CBC News reports that consumer debt, along with student loan debt, has skyrocketed amongst university students in the past ten years due to increased credit card use.

So, what is the solution?

This blog will offer some tips and strategies for young people to control spending and reduce debt before it is too late. By following this advice, you can enjoy all the benefits of using your new credit card while lessening the risk of finding yourself in hot water with your financial institution or issuer.

1.     Only use a credit card if you can pay for the purchase right away

It can be tempting, once that card is in your hand, to begin viewing yourself as a high roller, especially if you have been approved for a high-limit card. A high credit limit can give you a false sense of your actual spending power and entice you to overspend. In these situations, self-control is key. Just because the money is there does not mean you have to spend it all. Only make purchases if you have the money in your account to transfer it right away, to pay the balance owing.

2.     Avoid excess online shopping

Online shopping has made our lives infinitely more convenient. During the pandemic, it became one of the only ways we could shop and has become a necessity in some ways. However, it can quickly snowball out of control if kept unchecked. When you shop online, make sure you have the money in your account to transfer and pay the credit card amount owing immediately.

3.     Budget, budget, budget!

When creating your budget, calculate your monthly income and deduct fixed monthly expenses like rent, car and loan payments, and insurance from the total. From there, you can begin to budget for variable expenses and begin putting money aside in case of emergency. By having a budget and a plan for your money, you will avoid going into credit card debt.

To get the process started, consider using this helpful budget planner created by the Financial Consumer Agency of Canada (FCAC).

4.     Try to avoid paying the minimum

Students are risky consumers. That’s why student credit cards often come with a high interest rate—sometimes close to 20%. After all, this is how the credit card companies make their money.

For example, if you make a purchase of $100, you risk paying upwards of $20 on top of that original one hundred after the first month, and even more after that if you can’t afford to pay the whole balance. Paying your balance in full each month means more money in your pockets and less spent on unnecessary interest payments.

5.     Look at monthly statements

At the end of each month, you will receive a statement which keeps a record of your spending during that cycle. It is a good idea to review this document for any suspicious charges. You can also check this statement online at any time.

Unfortunately, we live in an age that is rampant with credit card fraud and identity theft. Today, leaps and bounds in technological progress means that scammers do not need to place a finger on your card to authorize a whole slew of charges.

The plus side is—credit card companies have fraud liability policies that protect you in the event of theft or unauthorized transaction. If you suspect a charge is fraudulent, report it to your credit card company immediately!

A credit card can be a blessing and a curse. For some, it opens a world of possibility. For others, it forecloses that very same world. It is important to remember that a credit card is not free money—it is a loan to be paid back with interest and should be treated with the same level of reverence.

If you are struggling with credit card debt, contact our Licensed Insolvency Trustees today. Our team can help to alleviate this burden by finding a solution that meets your individual needs. For more information, visit our website or contact us today.

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