Sick of Debt? How to Stop Borrowing on Your Credit CardJan 31, 2018
With a fresh year ahead, now is a great time to implement some new financial behaviours to pay down and avoid debt in the future. Focusing on how you use — and think about — your credit card can have a big impact.
Let’s get practical
There are a lot of tips out there for how to eliminate your debt. Here are some practical ways to put a few good tips to work.
Know your debt
Learn what your total debt is. That includes being aware of balances owing, interest, and timelines it will take you to pay it off. You’ll have a real understanding of your debt (and maybe a bit of a shock) when you input all the figures.
Think about meeting with a debt help professional if you feel overwhelmed or confused by how to calculate your debt, and how to eliminate it. A good general goal is to pay as much as you can toward your debt every month. Then, when you pay one debt off in full, divert that payment amount to retirement savings so you can avoid needing help with your debt when you’re retired.
Make up your own mind about your mortgage
Don’t overextend yourself for a house. Even if a lender tells you what your maximum mortgage can be, consider what your own financial safe-zone is.
Visit the Financial Consumer Agency of Canada’s (FCAC) website to use their mortgage stress test tool. Use higher interest rates and input different amounts for bills, possible debt payments, and income. It’s up to you to make your payments, so make sure you have the ability to pay your mortgage and cover costs.
Care for your credit score
A good rule of thumb is to not have more than 35 per cent of your existing credit used. If you are maxing out your credit, have overdue debt, or take a long time to repay your debt, you’ll likely be considered a risk to lenders.
Keep your budget alive
Budgets are living things. They can’t be static, because your life is always changing. If you try to force all of your changing circumstances into the same budget you created five years ago (or even five months ago), you might not be very successful.
If you aren’t successful with budgeting, you can start to overspend out of frustration, or fear. Don’t get hung up on stiff categories.
Credit cards aren’t money
If you only had ten dollars in your wallet, you wouldn’t expect to walk out of a store with fifty dollars’ worth of things.
Don’t treat your credit card like a pool of cash, ready for the taking. Instead of thinking it’s always there for borrowing, think of it as a payment method, and nothing else.
If you have the money to cover the charge in one or two months, you’re more likely to pay off your debts. It also means that you won’t have ongoing debts that drag down your credit score.
Don’t spend your life overpaying for items. If you borrow from a credit card and end up making months or years of interest payments, that’s what you’ll be doing.
Your credit limit on your card is not permission to spend the maximum. Rethink if you really need the item you’re looking to purchase. Pinpoint if you’re an impulse buyer, and create strategies to avoid situations or methods that might feed into impulse buying. Unsubscribe to emails that market sales to you, don’t take your credit card to stores where may be tempted to overspend, and avoid rewards traps (getting points isn’t reason to take on debt).
Check out Jessica Moorhouse’s blog about paying down debt and using credit responsibly.
Eliminating your debt and changing how you think about credit cards and money can help you achieve your financial goals this year.
Learn more practical tips on how to change your debt perspective from our Licensed Insolvency Trustees on this podcast.