In an August 25 interview on the Argent channel, Éric Lebel, Recovery & Reorganization Partner at Raymond Chabot Grant Thornton, gives advice for managing your finances in expensive periods like the beginning of the new school year. He also talks about the different possible paths and the traps to avoid for families who haven’t been able to save this year.
The back-to-school period is especially stressful for parents who have to cover many expenses: school supplies, new fall clothing, daycare, etc. Not to speak of wanting to please their children, who are demanding the latest accessories. These expenses aren’t necessarily part of the budget, and the credit card becomes an escape hatch. What can you do in case of unplanned excess spending?
The credit card is a last resort
“Ideally, you must budget how much this is going to cost and save for at least two or three months in advance,” Éric Lebel explains. For those who were unable to put money aside, the expert recommends using their line of credit first, if they have one. “The interest rate on the line of credit is much lower than the credit card interest rate,” he says.
Paying with a credit card doesn’t pose a problem if you are able to pay for 100% of your purchases the next month,” Éric Lebel explains. However, according to the latest CROP poll by Raymond Chabot Grant Thornton, 36% of Quebecers don’t pay their balance in full within 30 days.
Poor credit management: serious consequences
People who don’t pay their credit card in full every month may take years to repay their entire debt, due to very high interest charges. “If I have $15,000 in credit cards, if the interest rate is 19% and I can save $250 a month to pay the card, it will take 7 years and 5 months to repay, and this will cost me $11,000 in interest! That’s a lot of money!” Éric Lebel points out. To know the real cost of your credit cards, use the online calculator available on RaymondChabot.com.
Poor credit card management can have other serious consequences. People who do not make the minimum payment within 30 days will see their credit score downgraded. “A poor credit record can hinder me in obtaining a home, a car, cell phone, and even rental housing or a job,” Éric Lebel explains.
Plan your budget and stick to it
Good budget planning is necessary to avoid credit traps and prevent overindebtedness. Use our interactive tools to obtain an online diagnosis of your financial position and draw up your budget.
08 Sep 2015 | Written by :