by Cyndy Batchelor, Financial Advisor, BCom, FMA
O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd.
The cost of daily living is getting more expensive, and many use their credit cards to carry these increased costs. Carrying a balance on a credit card will incur interest charges that can take years to pay off. As credit card debt can hold an interest rate of up to 24%, the only way you will ever get ahead is to commit to never carrying a balance. That does not mean that you need to give up using your credit card, it simply means you should be paying off your full balance by the due date each month. Credit cards can help you build up good credit and give you rewards like dividend dollars, travel miles, or points to redeem for free items. This can help you save money in the long run. If they are used responsibly, credit cards can come with many incentives.
Here are some tips to using your credit cards to their best advantage:
– Set a credit limit that you can pay off:
Make sure you can pay off your credit card each month by the due date. Whatever you are charging to the card needs to be within the budget that you can afford to make that monthly payment ON TIME. If you go beyond your limit, stop using the credit card.
– Track your spending:
Tracking your spending is so important. You can do this by reviewing your credit card balance regularly, setting up a spreadsheet, utilizing an app, or through an alert on your phone. You may even want to make additional payments against the card to ensure the balance does not get out of hand.
– Live on a Budget:
Now that you have set a limit and are tracking your spending, ensure you are living up to your budget. Make sure your income is more than your expenses. Allocate your income to 50% needs, 30% wants, and 20% savings. If you need to revise your budget and drop some of the wants or sundries, as I like to call them, then revise as needed until your numbers are in line.
– Make your payment Automatic:
You can set up your bill payments, including your credit card, to be paid automatically. This will help you to keep to your monthly budget. It will also help you to ensure you are always paying off the credit card.
– Build yourself and Emergency Fund:
To avoid a sticky situation, start building an emergency fund. Emergencies like car repairs, a job loss, or a leaky roof can max out your credit card if you do not have emergency funds set aside. This can increase your overall debt. Ideally, your emergency fund will cover four to six months of living expenses. If you do have to use your emergency fund, then make sure you plan to build it back up again.
As a tool to build credit and earn rewards, a credit card can be a great financial asset.
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Cyndy Batchelor is a Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact her at 613.258.1997 or visit ofarrellwealth.com to discuss your circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
