Today, the number of credit cards in Canada had grown to almost 65 million while the value of annual purchases made with credit cards increased more than ten times. The hard truth: More credit cards mean more credit card debt per person. Many Canadians are swamped by their monthly credit card obligations. Credit card debt is painful because often it developed as a result of unnecessary purchases, leaving only unpaid balances subject to high interest charges. If your credit card balances are out of control, here’s how to take control and prevent a recurrence.
Do you really want to spend more money than necessary?Research proves that consumers spend substantially more money when purchasing with credit cards than with cash. If you’re intent on budget restraint, use cash or debit cards.
More cards mean more debt. Don’t get caught in the good-credit cycle that qualifies you for higher credit limits on existing cards and offers of new credit cards. The more cards you carry in your wallet, the more likely your debts will grow to an unmanageable level.
Resist introductory low rates for new credit cards. Some cards promise unusually low interest rates for new cardholders, suggesting they use their new card to pay off their old credit card debt. But read the fine print: When does the introductory low-interest period end? What will the new rate be? Does the new card include annual or monthly fees? Will a transfer fee be charged when moving one credit card balance to another?
Remember how credit card companies make money. It’s from the interest charged on your unpaid balance. Typically, this ranges from 12 to 18 percent annually (retail department stores may charge 28.8 percent). At those rates, credit card companies want you to maintain a substantial balance as long as you make minimum payments because it maximizes their profit.
Get your credit card debt under control:
- Destroy all but one or two of your current credit cards. Keep the cards with the lowest interest rate and no annual service fee.
- Pay off the card with the highest interest rate first. This card represents the biggest drain on your budget.
- Wherever possible, pay for purchases with cash or a debit card. You cannot reduce the balance on your credit cards if you keep adding charges to them.
Remember: Credit cards are not a source of income. They are a convenient on-the-spot loan that must be paid back, often at very high interest rates.
For help in getting your financial needs in balance so you can live a more generous life contact FaithLIfe Financial.
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