Credit Counselling Services

Using Credit Wisely

For many of our Consumer Proposal and Bankruptcy clients, learning to use credit wisely is one of the most important aspects of our Credit Counselling Services.

Whether you are starting out – or getting a fresh start, knowing the smart way to use credit will enable you to move confidently into your future.

If you already have credit debt – make sure you take control of your debt load as soon as possible.

If you are unable to repay your existing debt, and are looking for a fresh start in your financial life - contact the Professionals at David Sklar & Associates, Bankruptcy and Consumer Proposal Trustees. With five offices in the Greater Toronto Area – we are here to help you. Call us at 416-498-9200 to book your Free Consultation.

What is Credit?

Credit is a loan of money between a lender and a borrower – where the borrower agrees to pay back the loan plus interest according to specified terms.

There are two main types of credit – secured and unsecured.

Secured credit is offered on houses (mortgages) and on big ticket items such as vehicles. With a secured loan, the borrower does not have 'clear title' (total ownership) of the purchased property until the loan is paid in full. If a borrower is unable to make the required payments in the required manner, the lender has the right to sell the property used to secure the loan, to recover the amount still owing on the loan.

Unsecured credit is loans where no property has been secured for the loan. The most common type of unsecured credit is credit cards.

Using Secured Credit Wisely

Home Mortgages

Before you begin looking for a home – find out how much of a mortgage you can qualify for:

• How much money have you saved towards your down payment? 5% is usually the minimum recommended.
• Work out a budget to show how much you can afford to pay for a monthly mortgage. Be realistic! If it takes two incomes to cover your planned mortgage and there is no wiggle room – what happens if one of you is laid off? Will you be able to afford the basics of life and a mortgage on one income?
• Shop around for your house mortgage – there are many different financial institutions to work with, including credit unions and mortgage brokers. Make sure you know the best rates and terms available and exactly what your credit rating  is. The better your credit rating – the lower the interest on your mortgage will be, and the more likely that you will qualify for a mortgage through one of the main banks or credit unions.
• If you do not qualify for a bank mortgage – find out why. It might be better for you to spend time on improving your credit rating before you consider purchasing a home.

Canada Mortgage and Housing Corporation (CMHC) has an excellent, easy to follow home buying guide that we highly recommend you complete – Homebuying Step by Step

When you take out your mortgage – you will hear a lot of talk from your lender about the power of extra payments – listen very carefully, this will probably be the best advice you will ever get from a lender. This is where not mortgaging yourself to the limit will enable you to significantly reduce the cost of borrowing on your home, and reduce the number of years it will take you to pay off your mortgage.

Many people have accepted the idea that they will never be mortgage-free – but that does not have to be the case. Careful planning and budgeting can help you to become a mortgage-free home owner.

Vehicle Loans

Next to your home, your cars/trucks/SUVs/vans are most likely the biggest purchases you will make.

Before you begin looking for a vehicle – use your budget to work out how much you can afford in monthly payments and monthly vehicle operating costs. Be sure to include such costs as:

• Insurance (averaged per month)
• Gas/Oil per month
• Parking per month
• Maintenance (averaged per month)
• Repair (averaged per month)

Shop for the best loan you can get – starting with the major banks and credit unions. That way, when you walk onto the car lot you will know exactly what you can afford. If the car lot is able to make a better loan offer than you have found – great, but whatever the situation, you are in control because you have done your homework.

We also recommend that you do your homework in terms of car values – checking classified and car lot ads in newspapers and online. The Ontario Ministry of Transportation has put out a good guide for buying/selling vehicles in Ontario that you should be familiar with.

And of course, always, always have any vehicle you are considering buying checked out by an independent mechanic you trust

Using Credit Cards Wisely

Selecting a Credit Card

As in the case of any loan – before selecting a credit card it is essential to shop around.

When you are researching bank credit cards you will find there are a number of different card types. Selecting the type of card best suited to your needs will take some evaluation on your part. For example, is it worthwhile for you to pay an annual fee to have a card that has reward points? For most consumers, a bank credit card without an annual fee and no rewards is a wise decision.

Here are some of the things you need to know before selecting a bank credit card:

• What will you be using your credit card for?
• How often will you be using your card?
• Will you be able to budget for and track your credit card purchases?
• Will you be able to pay off your credit card every month?
• What is the annual interest rate charged on the card?
• How is interest calculated? (Very important to know, as many cards will charge you interest starting with the date of purchase if there is a balance being carried forward on the card)
• Is there an annual fee? If so, how much is it?
• If there are reward points, what are they and how are they earned?
• Are there any other fees other than annual fees and interest charges?
• Will you be charged extra for cash advances?
• What happens if your payment is late?

Be wary of introductory interest rates. Be fully aware of what the interest rate and fees will increase to after the introductory period, and what any balance you carry over from the introductory period will be charged at.

If you do not qualify for a regular bank credit card, you might be able to get a secured bank credit card. This type of card will require that you set up a special bank account which will be used to pay off the secured card. This type of card enables new consumers and consumers will poor credit ratings, to establish and build a credit history and improve their credit rating.

Note: Department store or retail credit cards tend to charge more interest than bank credit cards and are limited in where they can be used. While retail credit cards do offer rewards and some discounts, careful research needs to be done to make sure this type of card is of value to you. Warning: applying for a retail credit card in order to take advantage of a discount for applying – can have a negative impact on your credit rating (even if the card is never used).

Safe Care and Handling of Your Credit Card

The convenience of credit cards can be a trap for the unwary consumer. Here are some proven techniques for staying in control:

• Plan and budget for all your credit card purchases.
• Leave your credit card at home if you do not have a planned purchase to make.
• Pay off your entire credit card balance every month.
• If you are unable to pay off your entire credit card balance, make certain to at least pay the minimum balance due. Failing to pay your credit card (even once) on time can severely hurt your credit rating and have a long-lasting negative impact on your future credit needs.
• If you are concerned that you might overuse your credit card, put the card in a hard to reach place, such as your safety deposit box at your bank.
• Banks make mistakes – be sure to carefully check every credit card statement you receive before paying.

Use your credit card wisely and you will be able to enjoy the convenience of your credit card – without any of the negatives.

Serious Credit Problems?

At David Sklar & Associates we work with people who are facing serious financial stress. Often, through no fault of their own, their credit problems have escalated to a point where they need the help of a Consumer Proposal and in some cases, a Bankruptcy. If you are in the Greater Toronto Area and facing serious debt problems, call us for a Free Consultation at 416-498-9200 or get started with our Quick Assessment Form  to book your Free Consultation.

David Sklar & Associates Inc - Greater Toronto Ontario Bankruptcy Trustee
Consumer Proposals ~ Debt Consolidation ~ Debt Management ~ Bankruptcy