Trying to save money? Don’t be too thrifty this year
A lot of people are being tight with their money right now, saving in the wake of uncertainty in the job market, economy and even the housing market to some extent. In fact, a study released last week shows that debt reduction is a top priority for Canadians in 2016.
Paying down debt remains the top financial priority of Canadians. The poll found that 26 per cent of respondents named debt reduction as their key financial goal for 2016, the sixth straight year it has topped the list.
Homeownership is still an affordable option right now, and saving some extra money will come in handy when it comes time to apply for a mortgage. While tightening the purse strings can save you money and is good practice, neglecting your credit cards can actually do more harm than good in some cases.
A common misconception by savers is that they should pay off their credit cards and leave them aside if they are trying to maintain or improve their credit rating, this is actually not the case. In some instances, credit card companies will actually close accounts that aren’t being used. And as a general rule of thumb, you need to use credit to build credit. That still means being responsible with your credit cards, so here’s some guidelines:
- Use your credit cards: this may seem like odd advice, but just leaving your credit cards stagnant won’t actually help your credit score. Using your cards, and paying them off quickly, will help improve your rating.
- Pay your lowest balance cards first: feeling overwhelmed with repayment can make getting out of debt seem impossible. By starting with your lowest-owing card, you’ll get yourself on track to repayments and better credit.
- Don’t close cards once they’re paid off: 15% of your credit score is determined by the amount of time you’ve had credit.
- Don’t max out your credit cards: keep your cards to a maximum of 75% of the credit limit.
- Don’t pay off debts with other debts: paying off your credit card with lines of credit or secured loans, is just counter-active. You’re essentially converting unsecured debt into secured debt, but it’s all still debt.
If you’re looking for more information on credit cards and credit scores, there’s some more information on my blog or my website here.
