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A credit card is a loan, so generally, the lower your balance, the less interest you'll pay. You can avoid paying interest altogether on new purchases by paying the new balance total by the total minimum payment due date. Transaction fees are usually based on the amount of the transaction. You may not be able to avoid them, but if you understand how they work, you can often pay less. As each financial institution is different, ensure to check with your institution to determine what fees they have and how they work.
As a general rule, cash advances, access cheques, deposits or balance transfers interest will accrue from the first day of the transaction. But whatever types of transactions you make, if you can't pay your balance total in full, paying more than the total minimum monthly can help reduce your costs.
Balance transfer, access cheque and deposit fees—transferring balances to a creditor, writing a cheque or making a deposit to a chequing account can be a great way to take advantage of a lower interest rate, but there's often a fee attached. Consider both the rate and any fee before you decide whether a balance transfer, access cheque and/or deposit offer is right for you.
Cash advance fees—most issuers charge a fee for cash advances, which can be accessed through an ATM, over the counter at a bank, or a cash advance office. If your issuer has a cap on fees, you could save money by taking one large cash advance, rather than several small ones. Before taking the cash advance, factor in the amount of the fee to help you decide if the convenience is worth the cost. Also check to make sure you have the available credit as some issuers including MBNA not only have credit limits but also cash advance limits that restrict the amount of cash available.
Cash equivalent fees—"cash equivalents" are items that can be used as or changed into cash, like money orders, casino gaming chips, foreign currency and wire transfers. If you need to buy them, you'll have to accept the fee, but be sure to account for the fee amount so you don't go over your credit limit. Cash equivalents are treated the same as cash advances.
What More Fees?!?
Since Financial Instituations charge fees for their services, the only way to avoid credit card fees is by not using the service. Here are a few fees you can easily avoid:
Annual fee—this can be avoided by simply choosing a credit card with no annual fee. However, bear in mind that the interest rate may be higher for these types of cards.
Balance inactive fee—if you don't plan on using your credit card for more than a year, simply contact the issuer and close the account.
Statement copy fee—while your monthly statement is free, you will be charged for additional paper copy requests. This can be avoided by filing your account statements in a safe place at home. You may also be able to download free copies of your statements online.
Returned payment fee—this can be easily avoided by making sure that you have enough money in your chequing account to cover your payments before you send them out.
Over-limit fee - Since it's easy to spend more than your credit limit, keeping track of your balance is critical to avoiding over-limit fees. Keep in mind that in addition to your transactions; fees and interest can also add to your balance and put you over your credit limit. You can easily monitor your balance by reviewing your account statement in online banking or by phone.
Managing money is one of life's most important skills. Developing good credit habits now is the key. If you play it smart, you can avoid many of the money troubles that often plague individuals and be good with money.
Lesson 1: Budgeting
A budget will help you keep track of the money you have coming in and going out each month. It's pretty easy to create and it can help you figure out where to spend and where to save. If you've never used a budget to manage your money, now is the time to start. Just follow these steps:
Track your spending to see where the money goes.
Find out how much you need each month to make all your payments (keep in mind that you must pay at least the total minimum payment due on credit cards to maintain your accounts in good standing).
Make as tight a budget as you can and stick to it.
Lesson 2: Credit basics
Credit is more than just credit cards. It's a whole system that includes how much you borrow, which credit lending company you borrow from and how and when you pay them back. This credit history is recorded in your personal credit report maintained by credit reporting agencies.
Basically, the way you've handled your credit in the past can predict how you may handle credit in the future. That's why so many potential lenders are interested in your credit report. The credit history you build even while at college or university will likely be considered when you are ready to buy a home, apply for a job, get insurance or even purchase large electronics and appliances.
Lesson 3: Credit cards
A credit card is simply one of many tools used to borrow funds. The upside is that it offers convenience and flexibility when borrowing and can help you build a good credit history. The downside is that, when used improperly, it can lead to extra debt from compounding interest and make it both more difficult and expensive to borrow funds in the future.
For example, if you bought a $1,000 item with your credit card and couldn't pay it all back within the monthly billing cycle, you would owe that $1,000 less any payment you made, plus interest. Please remember that you must pay at least the total minimum payment due on your account by the total minimum payment due date to maintain your account in good standing. If you couldn't pay the next month, the interest would be compounded. Clearly, you can see the debt beginning to pile up.
Therefore, it's often best to wait to buy large, nonessential items when you have the cash on hand. Interest compounds daily on unpaid balances, so you can wind up paying a lot more than the original price on those items.
Lesson 4: Spending tips
Smart spending starts with managing needs versus wants. Make sure you take care of all your needs first.
These can include food, rent and loan payments. Then, set aside some money for emergencies, like auto repairs or illnesses. In life, unexpected expenditures always come up and an “emergency fund” will help you be better prepared for them.
If there's money left over, prioritize your wants and spend only that amount left over. Avoid any spending that will take on extra debt.
Lesson 5: Protect yourself against credit fraud
Sometimes it seems that you can't go online or open a newspaper without reading about identity theft or credit card fraud. The good news is there's a lot you can do to keep your identity — and your credit — safe:
Guard your Social Insurance Number (SIN), Personal Identification Numbers (PINs), passwords and account numbers. Don't leave them in an unsecure place.
Guard your laptop, cell phone, tablet and other technology against theft or fraudulent use. Avoid sharing your technology.
Treat your card and PIN as if they were cash. Do not leave them unattended in a restaurant, car, wallet or handbag.
Make sure websites are secure (look for the “lock” symbol and a URL that begins https://) before buying online.
Avoid sharing personal information on social networks.
Keep copies of your statements and other important documents in a safe and secure location; shred personal documents before throwing them away.
Don't leave important mail in your mailbox.
Be cautious when using an ATM; cover your PIN and take your receipt.
Imagine being debt-free. If your debts were paid off, you could have more money available to save for retirement, emergencies or vacation. You might also get access to better interest rates when you do need a loan. Most importantly, you could stop worrying about how to make ends meet and enjoy more peace of mind.
Know Your Money
A budget is simply a plan to get a sum of money needed or available for a particular purpose. If you've never used a budget to manage your financial needs, now is the time to start. Just follow these steps:
Track your spending to see where the money goes.
Find out how much you need each month to make all your payments.
Make as tight a budget as you can and stick to it.
The trick is to manage debt so that payments are always well within your means. Then you can enjoy the advantages and flexibility of credit—without the worry.
Once you have a budget and know how much you have available to spend, use it effectively for controlling your debt. Here are some suggestions:
Pay more than the total minimum payment due. Even a little more each month can help reduce your debt faster.
If you have more than one credit card, after you make the total minimum payments due on all your cards, pay the credit card balance with the highest interest rate first.
Consider a balance transfer or debt consolidation loan—but only if you can save on interest and avoid getting into more debt.
Stop using credit cards for non-essential purchases—just say "no" when you don't have the available cash.
Cut back on your expenses like in restaurants and entertainment. Learn to use discount stores, wholesale clubs and coupons. Also, learn to negotiate with vendors-not every price is set in stone.
Bring in more income. Get a part-time job or hold a yard sale.
Use unexpected money such as gifts or tax refunds to pay down your debt.
Talk to your creditors—depending on your financial situation, they may have suggestions or options available to help reduce your debt.
Don't be afraid to seek professional help if you need it. Visit External Resources for credit counseling assistance in Canada.
Borrowing responsibly means not taking on more debt than you can handle. Here are a few tips to help you be good with money:
Use your credit for planned purchases that fit into your monthly budget, and avoid making impulse buys for bargain-priced items. Those bargains won't seem like bargains when monthly interest charges are taken into consideration.
Not 4 the Everyday
It's not wise to finance purchases longer than the lifespan of the product you are buying. Financing a car over a long period is fine but everyday purchases should only be financed for short periods.
Mind the Time
Paying responsibly means paying your bills consistently and on time. It is essential part of building good credit. You can greatly reduce the amount of interest you pay simply by paying more than the total minimum monthly payment due. You can avoid interest altogether on purchases by paying your balance in full and on time each month.
Caution: Credit Limit Ahead
Avoid approaching or reaching your credit limit. Not only will you save on monthly interest charges, you'll be keeping credit available for when you need it most - emergencies.