Tips for managing credit

Credit can be a double-edged sword. On one hand, many people can’t live without it; it’s a tool that can be used for small things like ticket purchases, and big things like cars and homes. On the other hand, credit can make spending too easy. For example, using a credit card can make it feel painless to buy things, especially a few days before your next paycheque.

However, understanding what credit is, how you use it and how to avoid common credit traps can help you spend less money, lower costly interest and avoid unnecessary debt. Here are some strategies to help you use credit wisely, reduce your credit card debt and become a smarter spender. 

Know how credit works

There are two basic types of credit: “revolving” and “fixed-term”. Both have pros and cons and both can be really useful financial tools when used properly.

Revolving credit

The most popular types of revolving credit are credit cards and lines of credit. They provide a set credit limit and you can spend any amount up to it. As the amount spent gets paid off, it becomes available again. Each month, you can simply make the minimum payment (usually 3% of the total owed), pay it off completely or pay any amount in between.

While this flexibility can be an advantage, it can also be a drawback. You can quickly owe thousands of dollars in revolving balances and it can take a long time to pay them off. For example:

  • Credit card balance: $5,000
  • Annual interest rate: 19.99%
  • Monthly payment of $150
  • Time to pay off debt: Four years and two months 
  • Amount paid in interest: $2,357.061*

*According to the Government of Canada’s credit card payment calculator.

Fixed-term credit

Personal loans and mortgages are examples of credit that have a specific amount to be repaid over a set period (the term). This results in a fixed payment amount that fits your budget. It’s an ideal option for those who are determined to reduce their debt. If you are looking for more information about how loans work, check out everything you need to know about installment loans.  

Understand your relationship with credit

It’s important to understand how, when and why you use credit. Avoid these common money attitudes and behaviours as they can impact your credit score and ability to get credit in the future:

  • Having a buy-now, pay-later attitude.
  • Using credit for instant gratification.
  • Making impulsive purchases.
  • Using revolving credit as an ATM to pay for retail therapy.
  • Carrying large revolving credit balances.
  • Occasionally missing payments.

The first step to taking control of your credit is to understand your behaviour and work towards changing bad habits into good money habits you can build fast.

Try these five good credit tips:

  1. Stick to just one credit card. More cards mean more credit and it could become difficult to pay off multiple balances.
  2. Try to only use your credit when you know you can pay off the full amount every month.
  3. Always make more than the minimum payment. If you get a bonus or have some extra cash, use it to pay off the credit balance with the highest interest rate.
  4. If you carry a balance, try to keep it below 50 per cent of the limit — this is easier to manage, better for your credit score and means you’ll spend less money on interest.
  5. Always pay your bills on time and consider setting up automatic payments, as missed payments will hurt your credit score.

If you find yourself struggling to pay for necessities while trying to get your debt under control, consider taking out a debt consolidation loan. This can be a good financial strategy for reducing your debt with fixed payments that fit your budget.  All easyfinancial loans provide:

  • Pre-approval with no credit history required.
  • Flexible payment options to fit your unique circumstances.
  • Terms of up to 84 months.

Understanding what credit is and how you use it is a great first step toward helping you manage your spending, lowering your stress about money, and strengthening your financial confidence. 

At easyfinancial we are here to help. Talk to us if you are looking for some financial relief, have questions about managing debt in the face of inflation, or would like to adjust your current loan. Visit one of our 400 branches, call us at 1-888-502-3279, or apply online for loans up to $75,000. 

Disclaimer: This content is intended for informational purposes only and does not constitute financial advice on any subject matter.

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