Monday, December 4, 2017
7 Deadly Credit Mistakes
I watch the business news every day and a popular topic is always how much debt we are in as a country. Makes you think why we give the government such hell for getting into debt with our tax money when we do the same with our own money. Sorry, that’s a topic for another day. Anyways, credit can be a wonderful thing. It gives you flexibility, strength, and power with your financial situation. It can also be the bane of your existence. If you have ever had a good amount of credit card debt you know how crappy it can be. Seeing how this week at Budget Boss is all about Moron Money Moves, I think we should start it off with Credit Mistakes. It is important to understand that your mentality about borrowing will affect your financial outlook for the rest of your life. Some people can borrow their way to billions. For the rest of us, we must remain vigilant. Let’s get started.
1) Not having a credit card because you are scared
There is absolutely nothing wrong with fearing debt. Debt is gross, crushing and enveloping for those who have it. You have to understand that some debt is necessary. For instance, not many people have a few hundred thousand sitting around to buy a house with. That means you will have to take out a mortgage if you wish to own a home. When applying for a mortgage they look at several factors including income, debt-service ratio, and credit score. To have a good credit score you must have had some credit history. The easiest way to get credit history is by having a credit card and paying it off monthly. Use that fear to not allow you to get into costly debt, but don’t let it make you afraid of doing those things that will help you in the future.
2) Paying your bill late, especially credit cards
Every single day in our country the big banks make anywhere from 7-9 Million dollars in fees. Yes, that’s right, MILLION! Some of those fees include late fees from people not paying their bills on time. You must, must, must pay your bills on time. Every time you do not your credit score gets dinged. You also contribute to the wealth of large corporations, and who wants to do that? Not me says Joe! If you cannot pay your bill on time, make a payment arrangement beforehand and the company will play ball with you. Be proactive and not reactive. Remember, your credit score will follow you around like a lonely ex, so keep it where you want it to be.
Bank Fees In Canada On The Rise Amid Profit Margin Squeeze – Huffington Post
3) Paying the minimums only
Ever look at your credit card bill and see the top right corner where it states the length of time it will take if you only pay the minimum? 17 years to pay off $1500…..Seems about right??? Paying only the minimums will crush you. That is how these companies turn record profits year after year after year. It’s not because they are innovative and amazing at what they do. It is because we are lazy and complacent. They only get rich because we allow them to and we can stop that trend very easily buying paying off debts. Don’t believe me? Check this out:
$5000 Credit Card Debt (19% interest rate)
$129.17 Monthly Minimum Payment
It will take 275 Months (22 years, 11 months) to pay back the balance if you only pay the minimum
During that time, you will pay back $12,322.81 ($5000 principle, $7,322.81 in interest)
4) Co-Signing anything, for anyone
Do not and I repeat, do not be a co-signer for anyone. I remember when I went off to university my parents wouldn’t co-sign my OSAP loan. I was so angry at them back then, but looking back I get it. Why on earth would they get dinged for a stupid 19-year-olds bad decision? I see it all the time. Couples break up and someone is left holding the bag for the others bad financial moves. I have seen with some of my clients how bad credit can come back to haunt them out of nowhere, years after the fact. All done from co-signing for a friend or loved one. They only find out when trying to get a loan, how depressing. Look at it this way. If someone needs you to co-sign for them, is that someone you would want to co-sign for? The only people I would ever co-sign for are people who don’t need co-signers. Just don’t do it, seriously.
Top 10 reasons not to co-sign on a loan – Bankrate.com
5) Going over your credit limit
The funny thing about credit is that they have strange ways of punishing you. For instance: If you go over your limits you get charged a fee. Not just any fee, sometimes $50!! Think about that for a second. Chances are if you are over your limit, you are not in great financial shape. The company chooses at that time to punish you further by charging a fee. Never underestimate the power of a bank to kick you when you are down. Do not go over your limit, the cost is huge. Plus going over your limits dings your credit as well. A double whammy!
7 Reasons Why Net Worth is So Important – Budget Boss
6) Living in overdraft
Do you have overdraft protection? Do you ever wonder why it is called protection? Who are they protecting? Just a heads up, they are protecting themselves. Every time you go into overdraft you are charged a fee. Ah yes, another lovely fee. Sort of like the last point of being over the limit, overdraft loves to kick you when you are down. Why on earth would the bank allow you to be in a negative balance? That is because they make more in fees by offering that service that you would believe. I remember when me and my ex virtually lived in overdraft. We got really used to counting backward. Every month we got charged $40 in overdraft fees. If you are living in overdraft you are just throwing your money away. Make it a goal to get out and stay out of it.
7) Cash Advances
Something that always puzzled me was credit card companies offering cash advances. Seems strange that you would take out cash from a card when you can use that card almost anywhere for almost anything. What happened was credit card companies realized that they could monopolize on the fact that people can’t pay their bills, so they offered them the ability to take out cash for the few things that don’t accept credit, like your rent. What an amazing thing they did for everyone. Yes, but this great service comes at a cost, my friends. Interest on cash advances starts accruing immediately!!! That means that if you take out cash from your credit card, tomorrow you will owe interest on it. This interest rate is even more than their normal posted rates. Taking money from your credit card is maybe one of the dumbest things you could ever do, so don’t do it!
I absolutely love my credit cards and Line of Credit. They provide me the flexibility and strength to handle my personal finances the way I want to. This is only because I do not abuse them or keep a balance on them. By doing this I have raised my credit score tremendously over the past 3 years. I do realize the trouble they could get me in if I didn’t play the game right, so I make sure I am always on top of things. Managing your credit properly should be a financial goal for everyone. The cost of not doing so is tremendous.
Thanks for tuning in as we begin Money Moron Week at Budget Boss. Tune in tomorrow as we discuss Home Buying. If you would like to not be a Money Moron, shoot me a message at joe@budgetboss.ca. Don’t forget, our “2018 Financial Goal Setting Workshop” is next Tuesday, December 12 at 5 PM from Innovation Works in Downtown London, Ontario. Have a great week Bosses!
“Wise men don’t need advice. Fools won’t take it.” – Benjamin Franklin
Email – joe@budgetboss.ca
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