Using credit is an easy temptation if you’re short of cash. For many consumers, credit is readily available in the form of a credit card, making it too easy to overspend. If you are not physically handing over cash, it seems as if you’re not spending real money.

Credit cards do offer flexibility and convenience and can help you manage your money, if you pay your balance every month.  However, consumers who spend beyond their means can end up with an unmanageable debt load.

Getting credit, whether as a credit card or a loan, has become too easy. Companies lure you with promotions for pre-approved loans, low-interest introductory credit cards and free credit card cheques. So why not transfer your balances from current high-interest credit cards to a lower-interest one? Or, why not consolidate credit card debt into a loan?  These are two viable options, if you cut up the old credit cards.

The problem is; far too many consumers start using the cards that have been paid, once again increasing their debt loads. There is nothing wrong with using credit; it’s what fuels our economy. However, consumers must learn to manage their debt, understand the impact of interest rates and how the credit market operates, and learn to live within their means. If not, it can lead to financial strain to the point where you may be unable to make your payments.

Consider these statistics from a National Consumer Survey conducted a few years ago:

•    28% of Canadians do not know the interest rate on their credit cards
•    40% of Canadians do not pay their credit card off in full each month
•    53% of Canadians believe that credit is too easy to obtain in Canada
•    43% of Canadians have more than 3 credit cards
•    37% of Canadians only pay the minimum required amount on their credit card each month as opposed to paying it off in full
•    30% of Canadians carry a total balance on their credit card each month that is greater than $1,000 (on average)

If you are like many consumers who want to get out of the cycle of debt, make a commitment to discard any new offers that come in the mail and develop a plan that will work for you.

If you are finding that your debt is unmanageable, then talk to a Trustee in bankruptcy. They can review your financial situation and create solutions that will assist you in managing your debt.

By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)