Using credit cards is pretty much a must these days. With benefits like cash back, travel insurance, and price protection, just to name a few, charging it can do us a lot of good, right?
Well yes, assuming we’re paying our bills in full and on time, but that’s not the case for everyone.
Some of us make minimum payments for a variety of reasons—a lack of funds or a lack of education. Regardless of the reason there are a few people that are better off avoiding credit.
The new grad with student debt
Canadians have record debt levels, and if we’ve just graduated with student debt, the last thing we want is to be part of that statistic. The truth is money management isn’t exactly a common subject taught at any level of education so it’s easy for new grads to get caught up in the credit trap.
Credit cards are a quick and easy way for us to get the things we want now, but that will only add to our debt loads. Instead of purchasing things we can’t afford, paying down our student loans should be a priority, especially before the interest rate on our loans increases.
Having a credit card with a low limit for emergencies is fine, but only if the balance is paid off in full each month.
One of Canadians’ biggest mistakes is spending more than we make, and if we’ve got a serious shopping problem, using credit cards could build on that problem. Statistics show that we spend more when charging things to credit. This shouldn’t be a surprise since we never see the money physically leaving our wallets—and low minimum payments makes anything look “affordable.”
If we’re those people who constantly over shop, maybe it’s time to switch to a cash-only budget. Psychologically, we spend less when we see we don’t have much money in our wallets. Sure we can easily walk to the closest ATM and get more cash, but we can take that time and ask ourselves if we really need to make that purchase.
The terrible money manager
Managing our expenses can be tough, but one thing that all of us should be able to do is pay our bills on time. Missing payments due to a lack of funds or just being plain forgetful is unacceptable.
If we fail to make a single payment to our service providers, it will most likely result in our services being cut off or a not-so-happy call from collections—inconvenient and annoying, but manageable. On the other hand, missing two credit card payments can do some serious damage to our credit history since those non-payments will be reported. This can be a major problem if we ever plan on applying for a mortgage or line of credit in the future.
The awkward churner
I love churning credit cards. With Ratehub.ca’s credit card comparison tool, it’s never been easier to find the perfect card, but there’s a crowd out there that churns credit cards for the wrong reasons. If we’re constantly applying for credit cards that offer a 0% balance transfer just to cover our payments from different cards, that’s a pretty clear sign that we’ve got a debt problem.
When used properly, a balance transfer credit card is a great way to consolidate debt or to lower interest payments, but it shouldn’t be used just to delay making payments.
The adult who still needs the bank of mom and dad
Parents helping their kids with the down payment on their first homes has become pretty normal these days, but some of us have come to expect much more. Car payments, generous wedding gifts, and credit card debt are just some of the crazy things some adults have asked their parents to help with.
Getting a money bailout from our parents is a short-term solution since it doesn’t address our spending problems. It’s a better idea to reduce our reliance on credit so we learn how to save for things we want.
Getting rid of all our credit cards isn’t practical since we do need at least one to build a solid credit score, however we can limit the way we use them.
If we have a spending problem, we should probably use a single credit card with a low interest rate. Asking for a low limit will also keep our spending in check. Credit card providers will instantly approve us for a limit of a few thousand dollars, but there’s nothing preventing us from asking them to reduce that limit.