September 29, 2017

Credit Card ABC’s

Credit cards are pre-authorized debt issued by a bank or finance company which must be paid back. It is a privilege granted to you and not a right. You can avoid interest charges on purchases if the full balance of purchases is paid back within the month.

  1. Benefits. Credit cards are convenient enabling you to obtain free credit for 30 days to take advantage of sales, the convenience of not carrying cash and improving your credit score if you practice good credit by paying on time.
  2. Disadvantages. Credit cards can promote impulse spending and/or lack of comparison shopping. If you over spend and are unable to pay off the balance in full, you incur interest, restrict your available cash on payments and may impact your credit score negatively if you do not pay on time.
  3. Interest rate. Read the information provided with your credit card and the interest rates. There may be an introductory rate for new cards or transfers that increases significantly after the initial offer period. Retail cards obtained from retail stores typically have higher interest rates often approaching 30%.
  4. Multiple credit cards. It is generally recommended that you limit the number of credit cards that you have to your budget. There may be reasons that you hold more than one credit card such as tracking gas purchases, personal vs business, etc. but the total credit limit for all your credit cards is reported on your credit bureau which could have a negative impact on obtaining additional credit.
  5. Joint credit cards. It is important that you review the terms of the card and keep your application documentation. You could be responsible for the entire card balance, your purchases only or none depending upon the application terms.
  6. Reward points and other benefits. Research the terms of the credit card to match the benefits obtained from the card to your purchase style.   The credit cards offering perks generally have higher costs, both in annual fees and interest rates, over other cards. If you are considering a credit card with perks, you need to factor in these costs to determine if it is worth it. In some cases, your credit card perk may end up costing more than purchasing.
  7. Redeeming rewards. Read the terms of the credit card reward program to maximize the available rewards you use. Some cards have escalating rewards that have a greater benefit at higher levels. Others may offer cash or point rewards that depending upon your purchases, one may be of greater benefit to you than the other.
  8. Secured credit cards. If you do not have a good credit rating and are having difficulty obtaining a credit card, you can start with a secured credit card. The companies providing the secured cards require a reloadable payment that is put on the card, similar to the purchase of a gift card. Your available credit will depend upon your credit rating and the amount paid. It is important that you purchase a secured credit card from a reputable company. If you want to improve your credit score, you must also ensure that the company does report to the credit bureau.
  9. Compare. It is best to compare the credit cards to obtain the best match for your lifestyle. Financial Consumer Agency of Canada offers valuable information on choosing a credit card on their website as well as a credit card selector tool at http://itools-ioutils.fcac-acfc.gc.ca/STCV-OSVC/ccst-oscc-eng.aspx . In addition, MoneySense, has recently posted an article on Canada’s best credit cards of 2017 which we have made available on our corporate Facebook page.
  10. Paying off your credit card. In general, it is recommended that you pay your card off in full each month to avoid interest. However, in the event that there is a financial hardship, you need to make the minimum payment to avoid collections and pay higher interest cards off first. If you become overwhelmed and are unable to make regular payments, you can contact us for a free, confidential assessment of your options.

 

Debora Kwasnicky

Debora has been actively practicing as a Licensed Insolvency Trustee since June 1997. She began her career with a national insolvency firm in 1984, attended university while working until her final year, returned to article to obtain her CA designation (now CPA, CA) and her trustee license before leaving in 2006 to open her own boutique firm. Her experience has been in various industries including construction, forestry, finance, retail and high tech. She currently focuses her practice on individuals and small businesses.