Selecting the wrong credit card is a common mistake many people make, says Sylviane Desparois, communications manager of the Financial Consumer Agency of Canada. "There is a whole process you should go through when you want to get a new credit card or switch to a different card. There are so many products out there that you have to first identify your needs in order to pick the one that will work best for you."
Getting the right card is the first step. Next is reducing the costs associated with using that little piece of plastic. Here are 10 tips to help you do just that.
1. Pay your balance in full: Every month, every time. It's the only way to guarantee you won't spend a cent in interest.
2. Know the interest rate on your credit card: 28 per cent of Canadians don't know the rate they are paying, according to a 2007 survey of 4,000 Canadians by Credit Canada. Make it your business to find out.
3. Ask your bank about low-rate credit cards: If you can't pay your balance in full every month, switch to a low-rate card. All it takes is a simple phone call to your bank. These no-frills cards charge 10-12 per cent interest, sometimes even less. I made the switch from the Avion card to a Scotiabank line of credit Visa which has no annual fee and charges prime plus 5 per cent. I'll be saving a bundle on interest payments.
Page 1 of 2 - Learn 7 more ways to lower your credit card fees on page 2.
4. Ditch the retail credit cards – and fast: Store cards from places such as Future Shop or The Bay charge 30 per cent interest, the very top rates on the credit card heap.
5. Don't make cash advances on your credit card: The interest rate kicks in from the day you withdraw the money – there is no interest-free period. And some credit cards charge a higher interest rate for making these advances.
6. Make sure the reward program offers real rewards: If you aren't paying your balance in full every month, your rewards are being cancelled out by the interest you are paying.
7. Negotiate the annual fee: Ask your bank to waive this fee. If you're a longstanding customer with a good credit rating, you just might get lucky.
8. Know exactly when the bill is due: If you miss your credit card payment by even one day, you'll have to pay full interest for that month. And you don't need to wait until you get your statement to pay the bill – you can do that anytime.
9. Reduce the number of credit cards you have: If you aren't paying off your balance each month on all your cards, minimize the damage and carry only one card.
10. Lower your limit: Some people just can't handle having access to $10,000 or more on their credit card. If you're one of them, call your bank and simply ask to lower your limit to prevent yourself from overspending.
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