This article is sponsored by our partners at Capital One in celebration of Financial Literacy Month.
Do you want to improve your credit management habits? You’re not alone. By and large, we as Canadians are optimistic about our finances and feel intentional about improving our credit management habits or situation. However, feeling intentional isn’t enough in most cases. It’s important to put an action plan in place. With November being Financial Literacy Month, there’s no better time than the present!
Debt is sometimes a means to an end. It can be something you do in order to achieve something else, such as buying a home or car. There are really two kinds of debt – one that you are intentional and have a plan to pay off and one that you are probably not intentional about paying off. When you do take on debt, which most Canadians do at one point or another in their lifetime, the aim is that you take it on only if you can manage it with a plan.
Almost two-thirds (63 percent) of Canadians are carrying debt, according to Capital One – Credit Education Week poll results. This shouldn’t come as a surprise since most Canadians can’t afford to pay for a home in cash.
Canadians are pretty optimistic about their current debt situation. The poll found that 83 percent believe that they have the knowledge and resources to get out of debt and 44 percent say that they’ll be debt-free in one to two years. Despite the optimism, Canadians seem to be looking at their finances with rose coloured glasses. 52 percent say that their financial situation hasn’t improved year over year.
When it comes to our personal finances, having the knowledge and resources is great, but it’s equally important to put them to good use. This all starts with putting an action plan into place.
I’m a big fan of goal setting. You can use goals in many aspects of your life, including fitness, your career and finances. Rather than just saying that you’d like to pay off your credit cards “one day,” I find it’s a lot more effective to put a plan in place and figure out exactly when you’re going to pay off your debt.
The poll finds that 57 percent are meeting their debt-reduction goals this year, which is decent, but has some room for improvement.
For example, let’s say you have $3,000 in credit card debt. Figure out exactly how much you can afford to pay off on a monthly basis. Let’s say you decide to cancel cable and free up an extra $100 per month.
By committing yourself to put that extra $100 per month towards your credit card debt, you’re a lot more likely to pay it off, rather than just tossing whatever money you have left at the end of the month. By doing that not only will you be more optimistic about your finances, but you’ll also have a plan in place to help get your finances to where you want them to be.
Speaking of having some room for improvement, we as Canadians could be doing a better job with our credit savviness. About half of Canadians (49 percent) admit to not knowing their credit score and 58 percent say they didn’t feel they got the financial education they needed when they were young.
If you lack the financial skills you need, it’s not too late. There are many things you can do to improve your financial literacy. A great way is by making it the norm to talk about your finances with family, friends or in your community. By talking about money openly and honestly, you can act as a support network for each other and do a better job supporting and learning from each other.
Understanding your credit score may seem complicated, but it doesn’t have to be. Understanding a few basic rules can go a long way in improving your credit score. Making sure you don’t use more than 30 percent of your available credit (your credit utilization ratio) at any one time and aiming to pay off your debt in full and on time (or at least making the minimum payment on time), are both positive financial behaviours that will benefit you long-term.
Borrowell® is a registered trademark of Borrowell Inc. All Rights Reserved. The Equifax credit score is based on Equifax’s proprietary model and may not be the same score used by third parties to determine your credit profile. The score provided to you for educational use is the Equifax Risk Score.
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