GBC business administration graduate decodes the truth behind credit card hype
Illustration of credit cards by Sam Bullis/The Dialog
Responsibility, expenses, and debt. These grim words are not ones that people usually associate with credit cards, understandable because booths and commercials who set-up to sell credit cards, base their advertising platforms around buzzwords like benefits, rewards, and convenience rather than the sombre terms stated above.
Rather than be swayed by the slick advertisements, first-time credit card buyers should think carefully before they sign an agreement to add another slim piece of plastic to their wallet.
“A credit card should be viewed as a responsibility. It should only be used for everyday purchases, or larger purchases such as a TV (that you already have been saving for in your bank account), and have the money for the purchase ready to pay off your credit-card bill at the end of the month,” explains Cameron Smith, an honours bachelor of business administration graduate. “If you do not pay off your balance on the monthly statement, at the end of every month, you are putting yourself into debt which will escalate as interest accumulates.”
Interest is an odd English word that has a number of different meanings, and in the context of financial transactions, Smith says that, “interest is what credit-card companies charge when you do not pay off the balance owing on your monthly statement in its entirety.”
Offering a real-life example Smith says, “when you get your monthly statement it will tell you the total balance owing, as well as a minimum balance payable. You should always pay the total balance owing or else the credit-card company will start charging you interest on the remaining balance.”
Another technical term used by credit-card companies is a credit limit; Smith cautions against reaching this limit, doing so by saying that, “just because you have a maximum limit does not mean you ever have to reach it. Only put on what you can pay off every month.”
Too many Canadians are neglecting these basic credit fundamentals and the consequences are troubling.
According to credit monitoring agency TransUnion, at the end of 2013 the average Canadian consumer was struggling under a personal debt of $27,368, a level which this monitoring agency believes will continue to rise.
As for the rewards and benefits credit-card providers claim to be able to provide clients, Smith urges people not to be sucked in by such offers, and says, “lots of credit cards come with reward or travel programs, and these programs give you points for every dollar purchased on them. However, it can take years for these points to build up until they are redeemable for a reward.”
In the meantime, Smith says the problem is that annual fees on a reward card can be $40 a year, for a travel card they can be $120 or more.
Ultimately for all credit-card holders, and especially cash-strapped students, Smith believes, “if you are not paying off your total balance owing at the end of every month, you need to take a step back and look at your spending habits and if having a credit card is right for you.”
