8 habits that will help you avoid getting into debt

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Starting a new life in a new country can be expensive. You will need a new place to live in, furniture, appliances, and other things necessary to live a comfortable life. In this period of adjustment, we hear many stories of newcomers getting bogged down by debt just a few months upon arriving in Canada. This is understandable. It can be easy to fall into the debt trap especially if you have not adjusted your spending habits yet or if you are not aware of how financial instruments work in Canada.

Here are the eight guideposts of good financial management to help you avoid getting into debt:

  1. Don’t be in a rush

    We all move to another country expecting to have a better life. Upon arriving, some would buy a house, a new car, appliances and furniture even before they have a stable job. While it is not wrong to have these things (especially if you can afford them), what is wrong is pressuring yourself to have them even if it means maxing out your credit card and getting loans left and right. You will find that the journey from being in debt to getting out of it will be much harder than saving up and sacrificing luxury at the start. So take your time. Having a comfortable life is much sweeter without debt weighing on your mind.

  2. Set a budget

    Setting a budget is the first step to taking control of your finances. Living within your means requires knowing your priorities and keeping track of spending. The video below from the FCAC will help you see that small changes in your spending habits will amount to a big difference in your financial future:

  3. Use your credit card wisely

    • Pay your credit card balance in full. Don’t pay just the minimum balance each month. If you do this, it will take years to pay off your debt because of the interest.
    • Don’t get cash advance. Did you know that when you get a cash advance from your credit card the interest starts immediately from the time you made the withdrawal? Cash advances do not have a grace period similar to your regular credit card transaction. Also, you don’t only pay for the additional interest, there may also be a cash advance fee and ATM fees.
    • Don’t get too many credit cards. Having too many credit cards will make you lose track of your spending. Limit it to one or two and make sure that you know the cut-off dates for your cards.
    • Don’t charge things you can’t afford. Before you charge a purchase on your card, ask yourself: Can I afford this if I paid in cash? If the answer is no, then you will be better off not buying it.
  4. Track your spending

    According to a survey, almost 1 in 3 Canadians are afraid to see their credit card bill come January. They also found that majority of Canadians (61%) agreed with the statement “the holidays are the most stressful time of the year financially”. Aside from the social pressure of buying gifts during the season, Canadians incur a lot of debt because there’s Black Friday, Christmas and Boxing Day sales. These can make us focus more on the supposed “savings” and lose track of spending. To make the most out of these big shopping days, carry a list of what you need to buy. Do your best not to be distracted by other merchandize on sale. Remember, it’s not a deal unless you need it.

  5. Avoid buy now pay later plans

    Many companies offer buy now pay later plans for furniture, appliances and electronics. Buy now pay later is a financing plan that allows you to pay in installments, with low to even 0% interest. Some would even offer a grace period of six months to one year before payments start. Sounds like a great deal right? It can be if you need the appliance urgently and if you are disciplined enough to make the payments on time. Just know that the consequence for late payments can be enormous. If you miss even a day in payments, the interest rate can go as high as 29%. Also, there could be hidden additional fees for late payment, delivery, administration, or environmental fees. Should you wish to avail of a buy now pay later plan, read the fine print and make sure to pay on time and within the interest-free period.

  6. Maintain an emergency fund

    Urgent home repairs and health emergencies are unexpected expenses that you cannot forego. To avoid making a dent on your credit card, or worse, having to resort to getting a cash advance or withdrawing from your retirement savings, start an emergency fund. Read Do I really need an emergency fund? to know how to start saving.

  7. Buy second-hand

    Depending on your need and purpose, there are some items that are better bought second-hand than brand new like exercise equipment, some electrical goods, textbooks and furniture. This can give you enormous savings. Check out garage sales in the summer and fall all over the city, join buy and sell groups on Facebook, or register with Kijiji and similar sites. Don’t forget to inspect merchandize carefully before you buy. Make sure that they are functioning and are pest-free. Read Looking forward to garage sale season for more tips.

  8. Invest

    Take advantage of secure investments for your savings like a Tax Free Savings Account and other Registered Savings Plans to make your money grow slowly but surely. Ask your bank or credit union for investment options.

Sources: Five financial tips for newcomers, Dianne Nice, Globe and Mail; Holiday debt: Here’s how Winnipeg shoppers can avoid it, Alison MacKinnon, Global News; Survey:1 in 3 Canadians are afraid to see their credit card bill after the holidays – but are they prepared to pay it off?, Hyder Owainati, Ratehub; and How to shop Black Friday sales without overspending, Rubina Ahmed-Haq, CBC News. Retrieved November 23, 2018.

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Community Resources

Attend the Managing your Money Workshop from New Journey Housing. This is a free workshop where you can learn about budgeting, avoiding scams, types of credit, investing, retirement incomes and many more.

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