*The following information is based on personal experience - please consult your bank or financial planner to determine if credit-base spending is right for you.*
There are 3 C’s to Credit:
Character – determining if you have the honesty and ability to pay back the credit.
Capital – determining if you have any valuable assets to repay debts if necessary (and no – your shoes and clothes don’t count – jewelry might though…)
Capacity – do you have the capacity (income) to repay any debt you might accrue.
These were taken from the documentary “Maxed Out” – I watched it on Netflix. I've recently become obsessed with documentaries on fiscal responsibilities and economic downfalls, totally normal phase, I’m sure.
This year I’ve gone from using debit to using credit for spending.
Important things to remember about ‘credit’ base spending is:
- Do not spend more than you have allotted in your budget, or to put it nicely: only spend money you have.
- Consult a financial planner or your financial institute before considering this plan.
- Keep track of your spending. With a credit card it’s easy to forget that this IS your money.
- Keep and review all of your bank statements. You never know when they might come in handy.
- Keep track of withdrawal dates of monthly expenses and document it in your budget.
- Your building up credit! When all of us twentysomething shopaholics are ready to buy a house, this credit will help to get us an amazing low-rate mortgage!
This is how I use credit:
- I have the cheapest debit card (low fee, low transactions) and I leave my cash in there.
- I have a mid-range credit card that gives me 1-2% cashback on certain purchases. I use the Scotiabank Momentum VISA.
- I synced ‘monthly expenses’ with my credit card so that: (a) funds will be withdrawn automatically (I’m forgetful) and (b) I can earn cashback. As a reminder, I mark the due date of the monthly expenses I can’t sync with my credit card (Hydro and Car Insurance) to my budget.
- I use my credit card for everything. From a tea at Starbucks to a shirt at H&M (and I keep all my receipts). I document all expenses in my budget (see SSP Part 1).
- At the end of the month, I pay off my credit card. What's the benefit of leaving cash in my debit vs. using it to pay for everything? If I ever have an emergency, my debit is the source of cold hard cash.
- Lastly, GET RID OF CREDIT CARDS THAT DON’T HELP YOU. For example: Low, to no, cashback cards or cards that give you nothing in return aren't helping you. Pay them off and cut them up (you can use old credit cards to make art - see above).
In 4 months I’ve earned $200 cashback. Once a year the bank transfers your cashback to an account of your choice. I’ve opted to put it back onto my credit card (to avoid spending the money I’m saving).
Now that you have a tight budget, and credit sense, remember to SAVE! Check back for 'SSP Part 3: RRSP’s and TFSA’s' to learn how to put money away for both long and short term goals!