TD Canada Trust advises how to get the most out of your credit card by
showing you how it works
Credit card infographic from TD Canada Trust available at: smrmediaroom.ca/TDCreditCardsAndYou
TORONTO, June 19, 2012 /CNW/ - While most younger Canadians know the
benefits of credit cards, they may not be as mindful of the potential
pitfalls. According to the TD Canada Trust Credit Cards and You poll, many charge purchases to their cards and reap the benefits, but
some overlook the consequences when the bill comes due.
"A credit card is a great tool to manage and track your spending," says
Stephen Menon, Associate Vice President, Credit Cards, TD Canada Trust.
"Using your first credit card responsibly is a smart way to establish a
strong credit rating and help set yourself up for an attractive
interest rate when you apply for your first car loan or mortgage. A
credit card can also maximize your spending power if you choose a card
that comes with travel, cash back or car rewards."
Results of the poll showed that Canadians surveyed aged 18-34 are taking
advantage of these benefits, using their credit cards to earn points
towards travel or other purchases (60%), build their credit rating
(59%), track spending (36%) or manage cash flow (28%).
"Credit cards can also protect your purchases from breakage, loss and
theft, as well as reimburse you for expenses due to travel delays and
cancellations," adds Menon. "They can be safer to carry than cash, and
allow you to shop online and internationally. But all of these benefits
may be outweighed if you're taking on too much credit card debt."
When asked, respondents acknowledged having engaged in the following
Not paying their credit card balance in full at the end of the month
Making only the minimum monthly payment (40%)
Missing a monthly payment (23%)
Using their credit card to supplement their income (18%)
Routinely maxing out one credit card and needing another as backup (14%)
"Credit cards have lots of benefits," says Menon, "but getting in over
your head isn't one of them. Credit cards can be a cost-effective and
convenient way of accessing short-term financing. For instance, it may
make sense for you to make a large purchase with your credit card,
benefit from the points earned on that purchase and the purchase
warranty insurance that covers your purchase, and then pay it off in
increments over the course of a few months. This lets you maximize the
benefits for what should be a relatively small interest payment."
"However, credit cards should not be used as a means for perpetual,
permanent borrowing. For instance, be wary of permanently carrying a
balance; having maxed out your limit and being unable to pay it back;
or using your card to finance a lifestyle you can't afford."
Menon advises that using your credit card responsibly requires
understanding the costs of borrowing. Some conditions of using a credit
card that younger people may not be aware of:
Late or partial payment of your balance
Credit cards essentially offer customers an interest-free loan for 21
days, but only if you pay your balance in full by the due date. If you
make your payment even one day later, you will be charged interest on
your purchases from the day they were made or posted.
If you do not make your minimum monthly payment within 30 days of the
due date, your monthly interest rate may increase and you could lose
any promotional rates you are receiving. Your monthly interest rate
would not revert back to the original rate until you've made your
minimum monthly payment on time for a certain number of months in a
Rules for different types of transactions
Payments made are not necessarily applied in the same order as when
original purchases or other transactions are made on your card, but
rather proportionately, based on the category of transaction (e.g. cash
advances, purchases, fees) and on the interest rate that applies to the
amounts in those categories.
Cash advances, including credit card cheques and balance transfers,
typically have a higher interest rate than purchases and interest is
charged from the day of the transaction. Promotional rates usually have
an end date and then any amount left unpaid reverts to the higher rate
once the period is over.
Tips for credit card use
Understand the cost of borrowing by reading your cardholder agreement
and other disclosure material provided by the credit card issuer, or
talking to your credit card company, or a financial advisor.
If you're finding that you can't be disciplined about your credit card
use, consider setting up a preauthorized payment to make sure you
always pay off your minimum or entire balance due.
Pay off any outstanding credit card debt as fast as you can. If you're
only paying the minimum monthly balance, try doubling up to accelerate
your debt reduction.
"If you've not always used your credit card wisely, resolve to change
your ways in the future," says Menon. "Pay off any outstanding credit
card debt as fast as you can, because permanently carrying a balance
can be very expensive. For instance if you're carrying a $2,000 balance
at a 19.99% interest rate and only making the minimum monthly payment
every month, it will take you more than 7 years and over $4,000
including interest to pay off."
"Get the greatest benefit from your credit card by making sure you are
using it to your advantage, not the other way around," adds Menon.
Please click here for an infographic on credit cards.
About the TD Credit Cards and You Poll:
From February 13 to February 22, 2012, Research House conducted a
telephone survey among 1,001 randomly selected Canadians 18 years of
age or older. The data presented is based on the 239 respondents under
35 years of age who indicated they have at least one credit card.
About TD Canada Trust
TD Canada Trust offers personal and business banking to more than 11.5
million customers. We provide a wide range of products and services
from chequing and savings accounts, to credit cards, mortgages and
business banking, to credit protection and travel medical insurance, as
well as advice on managing everyday finances. TD Canada Trust makes
banking comfortable with award-winning service and convenience through
24/7 mobile, internet, telephone and ATM banking, as well as in over
1,100 branches, with convenient hours to serve customers better. For
more information, please visit: www.tdcanadatrust.com. TD Canada Trust is the Canadian retail bank of TD Bank Group, the
sixth largest bank in North America.
SOURCE TD Canada Trust
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