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By Hyder Owainati
Special to the Financial Independence Hub
The holiday season is now in full swing, and for most Canadians, that means ramped up spending and a large end-of-the-month credit card bill. While not inherently bad – as a credit card that’s paid off in full and on time can offer valuable cash back or travel points – there is a delicate line that must be tread.
Here are some of the major credit card mistakes you’ll want to avoid making over the busy holiday shopping season to ensure your card is working for you (and not the other way around).
Not following a budget and carrying a balance
Without a holiday budget in place, you’re more likely to spend beyond your means and carry a balance on your credit card. You always want to avoid a situation where you don’t have enough money in the bank to pay off your monthly credit card statement, as carrying a balance will lead to costly interest charges on top of the money you already owe.
When setting a holiday budget, make sure you set a maximum dollar amount you can spend, list out how many people you plan to buy gifts for, and factor in other costs that are likely to spike during the holidays, such as travel, gas and food for social gatherings.
Taking out a cash advance
Using a credit card at the ATM for a cash advance is almost always a bad idea and should only be accessed in cases of real emergencies when paper money is a necessity – not holiday “shopping emergencies.”
Cash advances are short-term loans that are accompanied with high fees, and unlike other purchases made on a credit card, may charge interest that accrues immediately with no grace period. So, stick to paying with cash that’s already in your wallet or charging your credit card at the sales counter over cash advances.
Using a high interest credit card
Several Canadians are starkly self-aware of that fact that they will overspend during the holidays. According a survey conducted by Ratehub.ca, 1 in 3 people anticipate they will carry a post-holiday credit card balance while a separate survey from CIBC found 52% of Canadians expect to go over budget during the busy shopping season. Yet, rewards credit cards that have high interest fees continue be the payment method of choice for many.
If you’re among the shoppers who foresee that your holiday spending will lead you to carry a balance, opt for cash or a low interest credit card. In the case of the former, you’ll be more inclined to limit your spending and avoid any interest, while in the latter, you can stretch your budget while paying up to 50% less in interest fees compared to what most other credit cards charge.
Signing up for a store credit card without thinking it through
A number of retailers may try to lure you into signing up for their store credit cards during the holidays, often providing steep discounts on everything in your shopping cart if you apply on the spot. You’ll want to think twice before signing on the dotted line however.
Most store credit cards have low credit limits, high interest charges in the instance you carry a balance and lacklustre rewards: particularly when compared to what Canada’s best travel credit cards or cash-back cards have to offer. While in some instances applying for a store credit card can be worth it, (if you frequent the same store for all your shopping runs for example), you’ll still want to do some research and avoid being swayed by a one-time discount.
Not shopping from your loyalty program’s e-store
From the airmilesshops to the Aeroplan eStore, numerous credit card loyalty programs have online shopping portals that offer bonus points on your purchases. So instead of automatically visiting a retailer’s official website or Amazon to hunt for online holiday bargains, tap into your loyalty program’s e-store to potentially walk away with up to double the amount of points your card typically offers.
Not reading the terms of your card’s welcome offer
If you picked up a new credit card with a lucrative welcome offer just in time for the holidays, you’ll want to get familiar with the offer’s terms and conditions. A number of welcome offers don’t come into effect immediately and may require you to hit a minimum spend of $1,000 in order to get your bonus points or wait up to 3 months before you can access your cash back savings.
Many card offers also stipulate your account needs to be in good standing for you to be eligible to receive an offer. So, if you missed a series of payments on your card, you may lose out. In such instances however, it’s always recommended you contact your bank or card issuer as they may offer to maintain your eligibility.
Paying extra fees while travelling
If you plan on escaping Canada’s blistering-cold winter for a beach getaway or are travelling to visit family abroad during the holidays, you’ll want to read up on what your card charges for foreign purchases. The huge majority of credit cards charge a foreign transaction fee (usually around 2.5%) on every purchase you make on your credit card in a non-Canadian currency. With that being said, there are a number of no foreign transaction fees credit cardsthat Canadians can use abroad that waive this fee and can help you save big on purchases you make outside of the border.
Not taking any action after accruing credit card debt
If, after the holidays have come and gone, you’ve racked up debt on your credit card, it’s critical you take steps to address it. Limit your spending on nice-to-haves and focus on paying off your balance, avoid racking up additional debt by using cash or debit to cover purchases instead of plastic, and consider transferring your balance to a new card with a lower interest rate (known as a balance transfer).
Hyder Owainati is a Content Marketing Specialist at Ratehub.ca, a website that compares credit cards in Canada, as well as mortgage rates, high-interest savings accounts, chequing accounts, and insurance, with the goal to empower Canadians to search smarter and save money.
