Did you know that November is Financial Literacy Month? Since 2011, by means of this initiative, organizations and companies are encouraged to mobilize to educate consumers and help them make responsible financial decisions. This year’s theme is “Take charge of your finances: It pays to know!”
Note: this post has been updated on November 7, 2017.
If you want to learn more about Financial Literacy Month and the appropriate use of credit, this article is for you. You’ll learn how good credit practices can help you better manage your debt.
The importance of Financial Literacy Month (FLM)
Financial Literacy Month is important. Its goal is to reinforce the financial health of Canadians. This November, various tools and information will be provided each week. The main objective is to give you the means to manage your personal finances effectively, by developing good reflexes, confidence and knowledge.
Helping consumers understand their responsibilities and save for the future are also objectives of the Financial Consumer Agency of Canada (FCAC), the organization behind Financial Literacy Month.
Licensed Insolvency Trustees (LIC) support these objectives as well. We think that well-informed consumers can make better decisions, especially with regard to credit. Certain notions such as budgets and interest rates must be well understood to avoid the traps of consumerism which can lead to insolvency.
Take for example the purchase of a new living room furniture set for $1000. The final price will vary depending on the type of transaction you choose.
So in the above example, it would be a good idea to pay the purchase in cash, because that would save $979.94 in interest charges. Remember: the longer the reimbursement period, the more the total purchase price will increase.
Thanks to Financial Literacy Month and by developing good purchase habits you will know to ask yourself the right questions:
- How much will this purchase cost me in the end?
- What is the best, most appropriate reimbursement period for my budget?
- How much will interest cost me by the end of the reimbursement period?
By thinking about these questions, you can determine if this purchase is worthwhile, or if it will just put you in debt. This is the reason for the Financial Literacy Month: to help consumers to better inform themselves before making purchases and become aware of the impact on their finances.
If you are faced with a situation like the above example, you can understand the real cost of your purchases with a credit card by consulting our interest calculator. This tool will allow you to calculate the total cost of your purchases as well as the planned pay-off period.
Is credit good or bad for you?
As an informed consumer, you should know that using credit is not a bad thing—when it is used appropriately. But you have to have the resources and knowledge base to manage your budget effectively. Without this, even day-to-day purchases can lead to debt if they are not paid off.
Financial literacy: Best practices for credit use
According to our Licensed Insolvency Trustees, here are the best practices to adopt if you routinely use a credit card, or you plan to borrow money:
- Make a realistic budget and be sure that your purchases follow it.
- Explore the different financing options before making a purchase (cash, credit card, point-of-sale financing, personal loan, etc.).
- Read and understand contract clauses, paying special attention to the interest rate and other fees.
- Limit the number of credit cards you hold to one or two.
- Pay the balance of your credit cards in full each month.
- If that’s impossible, pay more than the minimum required each time that you can.
What to do if your debts are too high
If you’re in a precarious financial situation and feeling stressed, remember that Licensed Insolvency Trustees can help you find solutions to your debt problems:
It’s better to seek advice quickly to prevent you from losing complete control of your personal finances. To figure out your debt ratio, use this online calculator. It will help you better understand your level of debt using objective data.
Becoming an informed consumer—and remaining one
To maintain your financial health, you have to be careful when facing the many credit products currently available. If you have a question about any of them, gather information to better understand your responsibilities and rights. It’s also important to develop and maintain good practices, especially with regard to credit. If you use credit responsibly, you will have several financial tools available to complete transactions of various kinds.
If you are worried about your financial health and you want to re-establish your personal finances, please contact us. Consultations are free and with no obligation on your part.