How to better manage your debt

Stories about Canadians’ household debt are making headlines this week, and whether or not the hype is true, there are always some lessons to be taken about spending, debt and how we deal with our credit. And seemingly, it’s not a new trend, based on this story from nearly a year ago:

We were increasingly relying on household borrowing for both purchases of housing and other consumption, as opposed to household income growth,” recalled Mr. Dodge, who left the bank in 2008. “We were very worried that by loosening up the rules about mortgage insurance we were putting additional pressure on Canadians to borrow for housing, and that was leading to house price inflation and increased indebtedness. [Globe and Mail]

Your credit is a very powerful tool for your financial future, and it’s especially important when it comes time to purchase a home. Whether you’re a first-time homebuyer or seasoned investor, here’s how to handle your credit with care.

• Understand credit: understand what makes up your credit score and what will affect it. Here’s a free guide on understanding your credit.
• Don’t rush into credit cards: don’t start with multiple credit cards, start with one (with a low limit) and master the management, then move onto two.
• Shop around: shop around for the best credit card rates and deals, and never be afraid to ask for advice when it comes to your finances.
• Read the fine print: always read your credit card agreements closely, and make sure you understand it before you sign.
• Keep cards paid off: try to pay off your credit card balance each month, not just the minimum payment.
• Pay your payments on time: just one late payment can affect your credit in a negative way, and will also raise your interest rate in the future.
• Budget: simple advice, but set a budget and make sure you stick to it.
• Update accounts: make sure your credit card companies are always kept aware of any changes in your address, etc.
• Be proactive: if you know a payment will be late, call your credit card company right away and setup a payment schedule. In most cases, being proactive won’t hurt you, and most companies are willing to work with you.
• Control spending: at the first sign of overspending on your card(s), stop using them. If you really can’t control yourself, give your credit cards to a friend for safekeeping until you get them under control again.

To learn more about credit card smarts and information you need to know, here’s my free guide: 11 Credit Card Secrets. As always, feel free to contact me anytime, or tweet me.