Trouble signs

You know you have a debt problem when you:

• frequently pay bills after their due date;
• bounce cheques regularly;
• use an advance from one credit card to pay the minimum amount on another card;
• receive a call from a collection agency;
• regularly ask friends or family for loans;
• have your utilities cut off for non-payment.

How to manage debt

No money down, easy credit terms, rent to own, interest payments that don't start for six months, credit cards in every pocket — it's very easy to get into debt. So before you sign up, think about how much debt you can afford. Think twice before using credit cards or other loans that will result in debt to extend your salary/income or your lifestyle. Credit problems now will stay with you for several years and could affect your future plans.

Or, perhaps you don't really need short-term credit such as credit cards and lines of credit. You can save what you would be paying in interest for other things.

"I buy when I have the money, or when I know I can honour the payments on time."

Credit cards

Credit cards can be convenient things and are even necessary for some purchases, such as those made on-line. But convenience can have a price — credit cards can have a significant impact on your budget when you don't pay the balance in full when it's due.

The next time you get a credit card bill, check out the annual interest rate for overdue accounts. It may be way over what financial institutions ask you to pay on loans or lines of credit. Credit card rates typically range from 9 percent to 29 percent. Shop around for the best card. If you're not paying off your credit card bills monthly, you may be paying high interest charges.

If you are going to use a credit card, find out which one is the best for you by using Industry Canada's free Credit Card Costs Calculator (www.consumer.ic.gc.ca). Choosing the right credit card based on your own spending and paying habits can save you a lot of money. Cards vary tremendously in their interest rates and suitability for individual consumers.

Credit card tips

• Save money by paying cash instead whenever possible.
• Know how much you're paying in interest, and shop around for the best rate.
• Pay your credit card debt in full when it is due because interest mounts up fast.
• Keep the number of cards you have under control — the fewer the better.
• A low credit limit will force you to use discipline. Ask a financial institution to lower your limit. If you shop on the Internet, a low credit limit might be a good idea anyway, because it can limit the damage if your credit card number goes astray.
• Credit cards offer some protection, and if yours is lost or stolen you are responsible for a maximum of $50 that anyone else may put on your card. As well, the financial institution that issued your card may stand between you and the merchant if something goes wrong.
• A line of credit, usually at a lower rate of interest, may be helpful in paying off credit card debt.

If it sounds too good to be true...

What about those “no interest for six months” ads? Read the fine print. If you don't pay off the entire bill within the six months, you'll probably find that the interest clock started ticking the moment you made the purchase.

Similarly, rent-to-own schemes may cost much more than other ways of paying, such as with cash, a bank loan or your credit card, even if their monthly payments seem small.

Debit cards

Using a debit card is like using cash: you may pay a transaction fee, but as long as you have money in your account you won't have to pay interest. However, there are things to consider when getting a debit card:

• In many cases your financial institution may not send you a detailed report of your purchases. This can make record keeping confusing and difficult. The result: it's harder to keep on top of things. Your record keeping needs to be very accurate.
• Ask your financial institution to send you a detailed monthly report of your purchases. See if you can receive it at a student rate or at the lowest possible cost. Your debit card might be attached to a line of credit, which makes it very easy to overspend — and costly too.
• If something goes wrong — say, someone gets your card and personal identification number (PIN), and makes a fraudulent purchase or withdrawal — you'll probably lose the money, with no recourse. If your debit card is attached to a line of credit, the thief could clean out your line of credit too.
• If you have a debit card, keep your PIN and card in separate places.