Recently, before my granddaughter left for college, we talked about credit cards: uses, abuse, mixed messages, and the alternative she has been practicing since she was preteen. Before our discussions, I reflected on the current economic challenges and credit card hoax: Students are told by society that they need credit cards (“cards”) ahead of time to build credit scores for early access to credit and significant. Parents agree, they do not teach or practice responsible card use, children use cards like parents, and the cycle of debt traps them.
Unfortunately, we see no contradictions in our views on credit. The previous subprime mortgage debacle was due to financial institutions seeking out and then lending funds to people with bad credit. Lately, have you heard advertisements for vehicles, furniture, appliances, and other consumer items? To retain or increase sales, merchants offer credit to almost everyone. Christian ministries have also entered the fray: they encourage donors to give on credit, regardless of their ability to pay!
New credit card regulations
Introduced in the US in 2009 and Canada in September 2010, they require greater transparency from card issuers to to protect card users. Canadian regulations require a minimum effective interest-free grace period of 21 days for customers who pay the balance in full. But my favorite rule that applies in both countries requires credit card statements to show the payment period if consumers paid only minimum monthly payments. This will surprise some users who will find that their monthly payments are equal to one life, debt judgment!
Prudent use of credit cards
Will regulations help? Probably not. Cardholders need a change in behavior to use credit cards wisely – a return to antiquated save-and-buy methods. Prudent use of the card pays full balances monthly; Expensive and wrong use carries monthly balances. Perhaps a first step in stopping using credit for consumer items could be a prepaid credit card. Banks offer them, loaded With funds, they are essentially cash cards, no credit checks are needed because the card must be backed by the cash equivalent of each purchase. If people want to take advantage of the 21-day minimum credit (in Canada), the next step is to convert the credit card into a check. Here is an approach:
- Get a low limit card, say $ 500
- Open a bank account, deposit $ 500
- Make arrangements with your bank to pay from that account on the due dates, the full monthly balance of the card
- Recharge your bank account monthly with the amount that the bank withdraws to pay the charges of the previous month
In month one, if you collected $ 300, which the bank paid from your account at the beginning of month two, leaving $ 200, deposit $ 300 to restore the balance to $ 500. Repeat the cycle. Linking your credit card to a bank account from which the bank pays the full monthly balance was standard practice in Japan when you lived there in the mid-1990s. Today in Canada, if requested, most banks will accept this procedure. , but they are unlikely to offer it.
Beware; Unless you distinguish the two parts of every spending decision – establishing need and then deciding how to pay for the item – the enticing merchant financing offers will get you. Plus, unless you’re working on a budget or spending plan, you’ll spend more than using cash – estimates range up to 30% more! If you don’t plan purchases and don’t pay the full monthly balance, you can’t afford a credit card; use cash or a prepaid card. Do you know how much interest you paid on credit card debt last year? This year to date?
Copyright (C) 2010, Michel A. Bell, Ontario, Canada.
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