Credit is useful. Without it, few of us would be able to live in homes or drive cars we actually own. It can let us bridge financing in the short-term, let us book a hotel room or car rental, shop online, provide emergency peace of mind, consolidate other debts, track spending, keep our money safe when travelling, and earn rewards, to name just a few ways in which credit can make life more pleasant.
But every coin has two sides. The downside to credit can exact a considerable toll — on your sleep, your family life, your health, your future.
To make sure you get the benefits of credit without the potentially devastating downside, develop some good credit-handling habits that will serve you well all your life. Obviously, the most important of these are to not outspend your income and never carry a balance on your cards, but there are some other ways you can stay in control of your credit.
– Should you find yourself in financial trouble, don’t hide. Be honest with your creditors and ask for their advice. Most creditors would rather offer some guidance and help you pay what you owe than risk not being paid at all. The best time to negotiate a solution is before you get too far off track.
– Keep an eye on your credit report. To make sure it’s accurate and current, periodically check your credit report online through a site such as Equifax.ca. You are legally entitled to see your credit report periodically for free, although you can pay for monthly monitoring services or instant online access. If you do spot mistakes, contact the credit bureau with details of the transaction in question, and find out how to rectify the situation.
– Prepare a workable spending plan and keep track of where your money goes. Trim areas you don’t need, such as daily trips to the coffee shop drive-through, and be aware of those things that are easily overlooked but that can add up to a lot of money, such as debt interest and bank charges. Writing down everything you spend is a great way to discover some hard truths.
– Stay away from high-interest payday loans and store credit cards.
– Start saving for emergencies. Experts recommend having three to six months’ worth of expenses banked, starting with putting away 10% of your net. If you happen on extra money, from an inheritance or a raise for example, add it to your savings. You won’t miss it if you don’t get in the habit of having it.
– Pay more than the minimum monthly payment on lines of credit and credit cards. It’s the only way to get ahead — paying just the minimum can add years (yes, years) to your repayment schedule and add thousands in interest.
– Never make late payments. Not only will late payments be reflected negatively on your credit report, but you risk losing low promotional interest rates or incurring extra charges.
With some care and common sense, credit can be a good friend. Without them, it can be your worst enemy.