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Financial Literacy

Credit and Debt Management

Credit is "the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future" Oxford Languages (2023)

Debt is "something typically money that is owed or due

Examples of Credit are credit cards, mortgages, personal loans, line of credit, car loans, payday loans etc.

Credit cards are the common for of credit. Using a credit card wisely is important when staying out of debt.

How to Use a Credit Card Wisely

  • Credit cards offer convenience for everyday purchases, online items and emergencies
  • Charges are a loan – with interest unless you pay in full by the due date
  • Charges add up quickly – pay the monthly balance in full
  • Choose the card with the features you want with the lowest cost
  • Limit the number of credit cards you hold
  • Keep your credit limit low
  • Read your monthly statement
  • Avoid cash advances except for emergencies

Pick the Right Credit Card

Choose a card that suits your needs and how you will use the card

In addition to the interest rate, consider:

  • Annual fees or other user fees
  • Real value of any points or benefits offered

How to Keep Control of Your Credit Card

  • Pay the balance in full each month
  • If you can’t pay it in full, pay as much as you can
  • Don’t make only the minimum payment
  • If you always carry a balance, get a low-rate card
  • Transfer the balance to a line of credit with a lower rate
  • Pay a few days before the due date
  • Monitor your account regularly (daily or every few days)

See the example below in how much you can save in interest if you make as much of a payment as you can versus the minimum payment.

Minimum vs Fixed Payments

Initial balance = $3,000        Interest rate = 18%

Tips for managing credit and debt

Shop around and compare credits card fees and interest rates.

Always keep with you budget- only borrow what you can afford to pay back in a realistic time

Payback more and pay often. The more payments you make the quicker you will pay it off and the less interest you will pay.

Take Control of Your Debt

  • Use savings to pay off balances
  • Pay down your highest interest rate debts first
  • Switch to less expensive credit cards
  • Call creditors to negotiate lower interest rates
  • Start automatic/online bill payment to stay on schedule
  • Leave your credit card at home