Jordan grew up on the coast of British Columbia, and moved to Toronto in 2004 to study radio and television at Ryerson University. After school, his part-time job at a local radio station quickly turned into a full-time marketing position at one of Canada's leading sports broadcasters. Jordan developed a passion for personal finance while buying his first house, and his obsession with online mortgage calculators led him to Ratehub.ca. When he's not at work, you'll find him at a campground, at a curling rink, or relaxing at home with his family.
October 15, 2019
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7 mins
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The holiday season is officially underway, and if you’re like many Canadians, that means your credit card is getting more action now than any other point of the year. This makes it the perfect time to brush up on your credit card knowledge.
Below, we've listed out some of the major credit card mistakes to avoid during the frenzy of the holiday shopping season (as well as year-round) to help ensure you rack up valuable rewards – not interest.
Mistake #1: Missing a payment or only making the minimum payment
Anytime you use your credit card (or type in your card’s details for an online purchase), you’re using borrowed money and accruing a balance that must be paid back by the date indicated on your monthly statement or else you risk paying interest charges and late fees – which you have to pay on top of your balance.
If you miss or are late making a payment, in addition to interest charges and late fees, you can also end up with a lower credit score, particularly in cases when a payment is 60 days overdue. A credit score is used to determine how reliable you are with money and can impact your ability to get approved for everything from mortgages and rental applications to credit cards and more.
When it comes to minimum payments, they can help you avoid the consequences of a missed payment, but it’ll still cost you. For one, it’ll take you longer to pay off your balance, as you’ll be paying back the money you owe on your credit card in small increments. Second, and arguably, more importantly, you’ll be charged interest on the remaining balance you’re carrying over. The cost of interest can quickly spiral, especially if you continue to charge more purchases on your credit card and build a bigger balance.
Here’s how to avoid it:
Start by setting up e-mail notifications from your bank to alert you when your statement is ready. If there’s a chance these emails will get buried in your inbox, you can take it up a notch by scheduling calendar events and posting notes of when your bill is due on your fridge or computer. For extra measure, you can also schedule automated payments to your credit card every month and even ask your bank if your billing cycle can be set to a specific easy-to-remember date.
If you can’t afford to pay off your balance in full, consider contributing more than the minimum balance each billing cycle to help chip away at your debt faster. It’s also critical that you set up a budget and track your card usage to ensure you’re only using a credit card to make purchases that you can afford to pay for at the end of the month. If you constantly struggle to pay off your monthly balance in full, you should consider opting for cash or debit more often, use credit sparingly, and switch over to making payments on a low-interest credit card - some of which charge half the annual interest rate of a typical credit card.
Mistake #2: Picking the wrong credit card
It’s easy to get swayed into picking a credit card based on which bank branch is located closest to home or because a salesperson offers 20% off your purchase if you also apply for their store credit card (this may be particularly true during the holidays).
However, these are far from the most effective ways to find a new card.
If you really want to add one of the best credit cards in Canada to your financial arsenal and maximize the amount of rewards points or cashback you earn, you must do your research, compare your options across multiple financial institutions, and select a card that aligns with your spending habits.
Here’s how to avoid it:
Begin by studying which purchases you make the most often as well as the type of rewards that you care about the most. For example, if you rarely travel abroad and are looking to save some money at the pump, you’ll want to look at the best cashback credit cards that offer the highest return on gas expenses and avoid wasting time on travel credit cards.
Moreover, several websites review credit cards across multiple financial institutions. These online resources can help introduce you to new cards, as well as pair you with the best credit cards based on your financial position and priorities.
Mistake #3: Maxing out your credit card
Aside from the obvious fact that a larger credit card balance is harder to pay off, maxing out your card can also negatively impact your credit score. Many lenders view the fact that you’re maxing out your card as a sign that you’re over-leveraged and carrying too much debt (even if you pay off your balance in full and on time).
Here’s how to avoid it:
The best way to avoid maxing out your credit card is by making a budget and keeping track of your spending. If you suspect that you will spend more than usual and will come close to hitting your credit limit, then consider paying some or all off your balance early - even before you receive your statement.
If you constantly come close to maxing out your credit card but are reliably paying off your balance in full, then you may want to consider asking for a credit limit increase. The general rule of thumb is that you should only borrow up to 30% of your total credit limit (across all your credit cards).
Mistake #4: Not taking full advantage of your card’s side perks
In most cases, the benefits of carrying a credit card don’t stop at the ability to earn valuable reward points or cash back. For example, in addition to offering points, many of the best travel credit cards in Canada also provide cardholders with several perks such as access to airport lounges, extended manufacturer's warranty, price protection, travel medical insurance and more.
These side perks can come in handy and offer the opportunity to unlock extra savings - especially if you’re traveling abroad to visit family during the holidays or when you’re making several big-ticket gift purchases.
Here’s how to avoid it:
Do your research and read up on terms and conditions to get familiar with what side perks your current credit card (or a potential new one) offers, as well as their possible limitations.
Mistake #5: Not taking any action after getting in credit card debt
Credit card debt can quickly spiral out of control, especially during peak spending periods such as the end-of-year holiday season. For every day you carry over a balance on your credit card, you can be charged upwards of 0.05% (or 19.99% annually).
Here’s how to avoid it:
The opposite of action is inaction. In other words, don’t hope your credit card issues go away on their own. You can take steps by setting out a budget, spending only on needs and not wants, and of course, limiting your card usage and focusing on paying down your balance.
You can also fast track your debt repayment plan by transferring your balance to a new card that charges a lower interest rate. Several balance transfer cards offer interest rates below 1% for the first six months that can help save you hundreds of dollars in interest.
Bottom Line
While it’s no secret that a credit card can help you earn rewards - and save - on your purchases, it’s critical that you use your card strategically and avoid the costly mistakes outlined above.
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