The inflation that the country is experiencing is bringing about a change in consumption habits and the use of credit.
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A reality particularly observed among young people aged 25 to 34, according to the evaluation company of the credit rating Equifax, which notes an increase in spending by credit cards for this age group.
Here are four traps to avoid to ensure you keep control over your finances, according to Sophie Desautels, Licensed Insolvency Trustee at Raymond Chabot.
1. Credit limit
It is important to make sure you have a credit limit that respects your budget. The higher the limit, the higher the risk of indebtedness.
2. Interest rate
The interest rate on the credit card plays a big role in indebtedness. It is therefore necessary to ensure that it is not too high.
For example, for a debt of $5000 on a credit card, a person who has an interest rate of 18.9% and who pays $160 per month will end up paying $6938 in interest.
Those who have an interest rate of 28.9% and who also pay $160 per month will pay $9353 for the same debt of $5000.
Also beware of cards sold in stores, they can have an interest rate 10% higher than those issued by a bank.
3. Stitch programs
Do you really need the travel credit card which has an annual fee of $200.
If you don’t travel every year, it might be more beneficial to consider a no-fee credit card that offers other types of rewards or discounts.
4. Plan payment in the budget
Many people neglect to calculate the credit card payment in the budget.
Before signing up for a card, calculate how much you’re willing to pay per month on a credit card.
This will help you determine the credit limit that’s right for you and ensure you don’t have any nasty surprises at the end of the month.