If you started university or college this year, congratulations! A couple months into the school year and I am sure that a lot is happening—have you had even a chance to catch your breath? Inhale…exhale. Now that you have had that moment, you may might be thinking about all the things that you have gained over the past few weeks: new friends, extra responsibilities, assigned readings, class assignments and perhaps even a fair amount of debt.
Expenses are to be expected—especially during this time of the year. Whether you swiped your credit card to take advantage of those back-to-school deals, or you only recently started racking up charges at online checkout pages to get ahead of the holiday shopping madness, your purchases are adding up fast. Debt is stressful, but it does not have to be debilitating.
Understanding your personal financial situation as well as the ins and outs of your card will help to relieve the stress of owning a credit card and, in the long run, ease your tensions of accumulating insurmountable debt.
Read and Understand Your Credit Card Statement
Each of your credit card transactions is tracked. A statement is a breakdown of your transactions for the month—give or take a couple of days. It is important to note that your statement period does not necessarily begin at the start of each month. If you are unsure of when it starts and ends, talk to your credit card company. At the end of the period, you will be given a summary of your spending in the form of a paper or online statement (tip: go green and save additional fees by picking the online option!) along with your balance owing and payment due date. Read your statement carefully! Look at what you have been using your credit card for and determine whether those purchases were, in fact, necessary. When debt is a cloud overhead, you should be putting on a pair of rain boots, not a new pair of heels.
Pay Your Balance in Full
It may be appealing to pay that minimum payment of $10 rather than the $100 you put on your card last month, but failing to pay the full balance on your credit card will only set you back further. For example, if you were to only make the $10 minimum payment, then it would take you 10 months to pay off $100, at which point you will have likely added on another few hundred dollars in purchases. Most credit cards also have a monthly interest rate. Paying your credit card balance on time and in full will help you avoid any additional interest charges. Keep in mind, however, it is always better to pay back something than nothing.
Avoid Extra Fees
Companies love tacking on additional fees to customer accounts, and banks are no different. It may seem convenient to withdraw money from the ATM with your credit card, but unlike your debit card, the charges for cash advances on your credit card can be substantial. Once additional charges are accounted for, that single withdrawal will have left a bigger hole in your wallet than you had intended.
Spend Only What You Can Afford
Now, you may be thinking, “If I had money, why would I need a credit card?” But just as you should not be spending money on things you do not need, you most definitely should not be spending money that you do not have. Exceeding your credit card limit will not only put you in the red but will result in additional fees. Treat your credit card as you would your debit card, which is hopefully by spending only the amount that you have available in your chequing account. If you have $200 in your chequing account, and you need to spend $50 on gas, then use your credit card to pay for gas, and immediately transfer $50 from your chequing account. This way you are effectively using your credit card, improving your credit and staying within your limit.
Rewards programs are tempting. You may even have been encouraged to sign up for a particular card because of the points or discounts it offers in exchange for its use. However, points are generally accumulated fairly slowly and may not even be worth much until you have spent thousands. As such, it is important to consider the return on your rewards card prior to signing up. For example, if you are living on your own it may sound appealing to sign up for a grocery rewards card given that you will need to eat. Compared to a family of four you are most likely purchasing significantly fewer groceries and earning fewer rewards, but you will still have to pay the same annual rate—which is generally higher on a rewards card. Look at all your options practically and determine which card suits your needs. It is better to stick to one credit card, but if you own multiple cards, start by cutting out the ones that lack actual benefits.
Maintain a Cash-Only Diet
Until your credit card situation is under control, keep to a cash-only diet. Set yourself a budget per month for all your expenses and the purchases you expect to make. It will be easier to save than to spend when you have to hand over physical cash instead of swiping your card.
Prior to solving any problem, you have to understand it. By gaining a better understanding of your financial situation and the role your credit card plays, you can find a balance between spending and saving. Follow the tips above and you will gradually build your credit while avoiding the pitfalls of credit card debt that so many of your classmates will experience this school year.