Long-term planning series: Do not accumulate credit card debt

Credit card debt is in a league of its own when it comes to debt.

I recently volunteered for Junior Achievement.  Junior Achievement is the largest non-profit youth education organization in Canada.  The organization supports student development in financial literacy, work readiness, and entrepreneurship.  I was delivering the “Dollars with Sense” financial literacy program to a class of grade 8 students.   In the lesson covering the advantages and disadvantages of credit cards, I took my own credit card out of my wallet and showed it to the class, before asking if any of the students knew what it was.  Quite a few hands shot up.  After listening to some of their responses, I told the class, “If you learn anything from the program today, if you take away one piece of advice, please remember never to accumulate credit card debt”.

Credit card debt is in a league of its own when it comes to debt.  It is often the highest interest rate you will pay on debt (I say often because the “Don’t Pay for a Year” deals have even higher rates).   Credit card companies love people who don’t pay off their credit card balances each month, or who make minimum monthly payments.  I know they love these customers because they are continuously trying to reward them with increasing credit limits!  

These companies want you to incur debt so that they can get the best return.  They only make about 1.5-3.0 per cent from retailers on purchases made with their card, but they can make as much as 24.99 per cent in interest from cardholders if you don’t pay your bill in full.  Be smart with your card.  Pay your balance in full each month and build reward points instead!  Use your card as an earning tool.

More and more, we live in a “cashless” society.  Who needs to carry cash when we have debit cards, credit cards, and gift cards?  I personally rarely carry cash.  But be smart with your cards.  Use them to your advantage.  I have only two credit cards, although I have received numerous offers in the mail that I continuously choose to recycle.  I use a credit card for two reasons.  One is to build credit, and the other is to build points.

One of my favourites is the Canadian Tire gas advantage card.  If you spend $1,000 a month on the card, you get 8¢ off a litre in gas (spending $2,000 will save you 10¢).  Depending on how much gas your or your family uses, this can amount to significant savings in fuel costs.  Others offer travel rewards, cash-back, free merchandise, free groceries, and other incentive programs.  Find the one that works best for you.  If you can be responsible with a credit card, you can reap some great free rewards.

About the Author

Alison Stanley