Credit cards—can’t live with ‘em, can’t live without ‘em. Or can you?
Today, the average Canadian owes over $22,000 in consumer (non-mortgage) debt, with 46-55 year olds maintaining the largest balances—generally about $36,000! But as difficult as it may seem, it is possible to beat your credit card addiction. It just takes good money management, a little bit of ingenuity, and a lot of willpower. So without further ado here are 5 ways you can kick the credit card habit.
1. Develop a monthly budget.
We tend to live above our means, and credit cards are the worst enablers. So if you’re going to live without them, you need to create a monthly written budget to keep track of your finances. It might sound complicated or intimidating, but it doesn’t have to be; you have your phone on you at all times, right? So keep track of each purchase with it—there are even mobile apps like Mint or Wally that can help you with that.
2. Use a prepaid card.
“Wait a minute,” you might be thinking to yourself, “I thought I was trying to stop using credit cards.” That’s right, but it’s not always practical or safe to carry around a wad of cash. So instead of credit cards, many people turn to a debit card linked to their bank account. Unfortunately, if you’re not careful about your spending, banks will often allow charges to go through even if you don’t have the funds to cover them, resulting in Non-Sufficient Fund (NSF) fees. And these charges can often cost you as much as $45 per transaction. With a prepaid card you can still carry plastic, but the card is loaded with your own money that you put onto it yourself. When you've used up all the funds on the card, it stops working until you load it with more money.
3. Create an emergency fund.
Many people hang onto their credit cards “in case of emergency.” Problem is, eventually that stylish new pair of boots can start looking like more and more of an emergency to you, and then before you know it, you’re back in the hole. So try to put aside some of your income each month toward a true emergency fund, so that when your car breaks down or you have an emergency home repair you can pay for it using this personal fund instead of relying on a credit card.
4. Look for balance transfer opportunities.
You may find that one of your cards is offering 0% balance transfers for 12 months. You can transfer high-interest balances to pay down your debt faster and put away that card forever, quicker. A word of caution, some credit card companies have some sneaky practices as revealed in a recent MarketWatch report. These practices could ultimately cost you money in the long-run, so it’s best to always read the fine print and do the math.
5. Reward yourself.
From our kids to our pets, we use positive reinforcement every day. It can work on yourself, too. Each month that you stay on budget, treat yourself to something relatively inexpensive but that you’ve just about eliminated from your life in order to rid yourself of credit card debt. Maybe it’s those new camo gloves, a movie you’ve been wanting to see, or just that expensive latte you used to love so much. Whatever your fancy, it’s good to give yourself the occasional pat on the back for a job well done.
...And that extra tip we promised.
One very important thing to remember: don’t cancel your credit cards. Lock them up, cut them up, freeze them in ice, whatever you need to do to avoid using them, but keep the accounts open. Why? Because your credit limit affects your credit score, and closing them can actually lower your score. If one of your cards has an annual fee, it’s understandable that you would want to cancel it to avoid the fee; instead, contact the credit card company. Generally, most offer other cards with no annual fee that you can switch to at no cost while maintaining your credit score.
Subscribe to the Credit Canada blog for more valuable tips on learning to live without credit cards, and be sure to download our Holiday Hangover Guide for tricks to chipping away at those post-holiday bills.
