Debt Relief Experts
Credit is buying something now, and paying later.
Credit is risky, because you don’t know the future. You don’t know if you will be able to repay what you borrowed.
Used wisely, there are benefits to credit, including:
- convenience (not carrying lots of cash);
- rewards and point programs;
- use of services and products is immediate;
- security in times of emergency.
But if you don’t use credit wisely it can lead to numerous problems, including:
- loss of financial flexibility;
- increased cost of services and products (because you are paying interest on the money you borrowed to make the purchase);
- tendency to overspend;
- risk of future debt problems;
- increased stress (health problems, lack of sleep)
Tips for Using Credit Wisely
Avoid Payday Loans! We know it’s tempting, when you need some cash, to get a payday loan, but don’t! Under Ontario law, a payday loan lender can charge $15 for every $100 borrowed, regardless of the length of the loan. So if you borrow $100 for two weeks, you can pay $15 in interest. If you do that every two weeks, all year long, you will have paid $15 in interest 26 times, which works out to an annual interest rate of 390%! Don’t use payday loans; you can’t afford it. We understand. Rent is due on the 1st, and you don’t get paid until the 5th, so a payday loan seems like a good idea. A better option is to tell your landlord you will be five days late with the rent, and then make a plan to pay on time next month. See more in our article on 8 Alternatives to payday loans.
Don’t Pay Interest on Credit Cards! If you owe $3,500 on a credit card at 19.99% interest, and you pay the minimum payment of 2% of the balance each month, you will pay over $15,000 in interest and it will take you 57 years to pay off the debt! (You made the right decision to deal with your credit card debt through a consumer proposal or bankruptcy). Here’s a credit card interest calculator that can show you how much you pay in interest on a credit card.
Don’t co-sign for someone else! It’s good to want to help your family and friends, but if they can’t pay, you become fully responsible for the entire debt. It’s a financial disaster to finish your consumer proposal or bankruptcy only to find out that you are being sued for a debt you co-signed; don’t do it, unless you are able to make all of the payments if the primary borrower can’t pay. If you want to help friends or family, give them whatever cash you can, because the most you can lose is what you give them; your risk is limited. You have a fresh start in your own life, so be very careful before you let someone else put your financial future at risk. (And yes, we understand that parents often co-sign for an apartment lease for their children; just be aware of the risk, and make sure you have a plan if they can’t pay and you become responsible for the entire debt).