The majority of financial problems are the end result of improper money management. Regardless of your earnings, if you are smart with your finances, make good investments, and are dedicated to improving, you too can achieve financial freedom.
Here are some common financial mistakes Canadians should be aware of
Ignoring your credit rating
Understanding your credit rating is extremely important as it can heavily influence your financial condition. In Canada, you can get useful insight out of your credit ratings, meaning lenders can quickly get an idea of your financial history.
Financial Mistakes You Should Avoid In Canada Red Payday
Here is a brief overview of credit ratings in Canada
Every borrower is given a number from 1 to 9 as well as a letter, either I, O, or R. The numbers and letters are used to inform lenders of a borrower’s creditworthiness. The meanings of the numerals and letters are listed below.
Credit rating ranges from 0 to 9
The number “1” indicates that you pay all of your invoices within 30 days of the due date.
If you have a “9” on your credit report, you never pay your debts.
The value “0” indicates that the account is too fresh to establish your payment patterns.
“I” denotes that you have an installment loan, which is a loan for which you make a fixed monthly payment until a specific date.
The letter “O” indicates that you have an open credit account or one with a balance that must be paid back at the end of each period.
“R” denotes revolving credit, such as credit cards, in which you make monthly payments, but the amount and minimum payment are subject to change.
So, understand what your credit ratings mean and take steps to improve them.
Ignoring An Emergency Fund
Unexpected expenses are unavoidable, and if you are not financially prepared to deal with them, you may find yourself in a financial bind. As a result, it’s always a good idea to build up an emergency fund to cover those inevitable unplanned expenses.
How much do you need in an emergency fund?
The exact amount will be different for everyone, but ideally, you should have six months of your monthly income saved up in your emergency fund to be used in urgent financial situations only. You should also keep the fund away from your general savings accounts as it can be very easy to get carried away and spend the money on unnecessary expenses.
Tangerine savings account and Scotia saving account are two great options in Canada to create an emergency fund as both the accounts have the incentive to hold the money to these accounts in the long run.
Dependencies on Credit Cards
When you start using a credit card for all of your payments, you’re more likely to use it for short-term loans, such as buying groceries or other needs. These payments add up to a significant amount of debt, which will drag you around for at least a few years. You must learn to live within your means and stop spending more than you make.
Now, many would argue that 0% APR cards do not incur any interest, so it will be a good option for financing in the long run. But that’s just half the story, as most Canadian credit card providers set a period for which you can enjoy the 0% APR rates. After this period, however, you will have to spend up to 20% on interest if you are using credit cards like Scotiabank† Rewards VISA*, which is certainly not cheap.
So, it’s okay to use your credit cards from time to time, but it is essential to understand that they are designed to be profitable and will incur you a ton of money when used in the long term.
Not taking a loan consolidation.
If you have multiple outstanding loans, it can be a good idea to merge them into one single loan that you can pay off with a monthly installment. This process is known as loan consolidation, and it is an effective way to pay off large debts in a realistic amount of time.
Loan consolidation does not affect your credit score; moreover, it also helps you lower your actual debt if you have improved your credit ratings since you took the earlier loan, meaning you have to pay less than you initially expected.
Learn to take a step back, as you have to be patient if you want to achieve financial freedom. But life is unpredictable, and no matter how much you plan, there will be instances where you need urgent cash. So if you are in need of urgent loans, consider applying for a same-day payday loan. These loans are approved almost instantly and do not require an extensive credit check, so you can get them even with a bad credit rating. Payday loans are personal loans and can be used for any purpose. So if you are on the hunt for a guaranteed loan to address an urgent financial problem, check out Redpayday’s instant, short-term payday loan.