November is Financial Literacy Month. Now is a good time to update your knowledge in this area and make sure you don’t take actions that will harm your finances.
1. Be careful with your debt-to-income ratio
“This is the very first factor that a financial institution takes into account when a customer applies for a loan,” recalls Pierre Fortin, president of Jean Fortin, Personal Finance Advisors. “You can use this ratio to assess your ability to repay your debts. If it is too high, over 40%, there is a risk that the bank will refuse you a loan,” he says. For example, you can calculate your value here: Debt Ratio.com.
2. Monitor your credit report
Check your credit report with Equifax and TransUnion annually and before applying for credit to check your score and ensure there are no errors in your report. A rejected loan application is never pleasant and will punish you.
3. Pay your bills on time
“Regardless of the bill amount, whether $200 or $2,000, any late payment of more than 90 days will go on your credit report and stay there for six years! This lowers your credit score,” says Pierre Fortin. A forgotten cell phone bill can cost you dearly…
4. Check your credit limit usage
If you regularly use more than 50% of your credit card’s approved credit limit, it will hurt your score, even if you pay off the account in full each month. “It is better to have a higher limit that we use less than a small limit that is very busy,” advises Pierre Fortin.
5. Pay off your credit card balance in full
Please note: If you do not pay your balance in full by the due date, interest will accrue on all of your purchases for the month, as well as on all future purchases until your current balance reaches $0, warns Pierre Fortin. To find out how much your credit card costs in interest, do the calculation here, for example: macartedecredit.com.
6. Use your credit card as a payment method
A credit card should only be used as a means of payment as it is one of the worst credit instruments due to the very high interest rates (20% on average). “A credit purchase of $1,000 will cost you $1,500 if you only pay the minimum amount each month,” says Pierre Fortin.
7. Make a budget
While we generally know how much we make each month, we often have a less clear idea of what we spend. With a budget you can know where your money is going, avoid unnecessary expenses and save money. Several tools are available online, including this one: faitvotrebudget.com.
8th. Maximize your tax benefits
“Find out about the different tax credits and tax benefits you are entitled to in order to make the most of them,” recommends Pierre Fortin. You could reduce your tax burden by contributing to your RRSP and CELIAPP or taking advantage of government programs (Registered Education Savings Plan grants, Registered Disability Savings Plan, housing assistance, seniors’ loans, disabled loans, guaranteed income supplement, etc.). )
9. Save and build an emergency fund
Pay yourself first! This means you should put saving at the top of your list, ahead of other expenses. To do this, schedule automatic withdrawals to coincide with your paycheck. “Even if we don’t have the means to set aside a lot of money, a few dozen dollars per paycheck is a good start,” emphasizes Pierre Fortin. This saving prevents you from having to resort to a loan and getting into debt in the event of unforeseen events.
10. Watch out for warning signs
According to most lenders, the monthly repayment of all your debts, excluding the mortgage, should not exceed 10 to 15% of your after-tax income. If you exceed this ratio, it’s time to take control of your finances.