Most people are frightened by the notion of managing their own finances, bestselling author Alison Griffiths explains in "Count on Yourself: Take Charge of Your Money." This fear prevents them from asking the right questions, and in a tough economy, consumers often panic and make potentially catastrophic money decisions.
That panic is a feeling Griffiths knows well. A Canadian record-holding swimmer in her youth, Alison was twice caught unprepared by open-water undertows. Overpowered by the rip currents, panic caused the terrified teenager to do all the wrong things.
When it comes to credit cards, consumers might be overwhelmed by the choices they have and paralyzed by the fear of getting into debt. We asked Griffiths for her thoughts about using credit cards -- and keeping your credit under control.
CreditCards.ca: How can Canadians apply your "Count on Yourself" strategy to credit cards?
Alison Griffiths: First of all, I think a lot of people have too many credit cards. I think everybody should have one or two.
I know many people say that they get great deals on their retail credit cards. Home Depot is a really good example. Apply for their card, and you receive 10 or 15 per cent off your purchase. A lot of retailers are like that, and I know those special discounts can be very tempting. That's OK, as long as you apply, collect the reward, pay off the balance and then cancel the high-interest store card.
If that's too much work, you're more likely to be on top of your spending if you have just one credit card to worry about. I have one card with a backup, plus some U.S. dollar credit cards. Back in 2003, during the Eastern seaboard power outage and blackout, my main credit card didn't work, so I had to use my backup card.
CreditCards.ca: What is the most critical factor in using your cards well?
Griffiths: Credit cards are a useful tool and essential in today's society, but you must first clearly decide exactly who you are. If you're the kind of person who pays off their balance every month, then put everything on your credit cards. If not, stick to one card, and only use it for emergencies.
I, for example, put everything on my credit card. I'll spend $4 using my credit card. But I also pay off my balance every month.
I find this is great for me because, number one, I get loyalty points, which I can then use to buy other things. Number two, the credit card statements actually help me to budget and to watch what I'm spending. Everything is on my credit card statement, with the exception of a couple bills that I pay by cheque or online debit. To me, it's such an engrained habit that I can't even think of carrying a balance.
But if you're not that kind of person, then stick with debit card purchases and use your credit card for emergencies. When I was growing up, my parents viewed a credit card as being a survival kit, to be used in situations like when you got stuck at the airport and had to stay overnight.
More "Count on Yourself" tips: How to pick
the right credit card
In the later
chapters in "Count on Yourself," Griffiths reveals five simple investment
portfolios tailored to risk-tolerance levels ranging from very conservative to
aggressive. Surprisingly, the best performers often involve minimal risk and
require the least amount of work.
Just as with your investments, the types of credit cards you pick should mirror the type of cardholder you are. Consumers with a history of missing monthly payments should focus on low interest credit cards with small annual fees, or none at all.
If you pay your monthly bills conscientiously, then consider which rewards cards will enrich you with the most benefits at the lowest possible costs, in terms of the annual percentage rate (APR) and fees. Some rewards cards specialize in cash-back incentives and gas discounts, while others offer free movies, airline tickets and groceries.
Like designing a winning investment portfolio, picking the right credit cards puts you in control.
See related: Alison Griffiths' 5 money resolutions for 2012; Expert Q&A: How to spot a bad financial planner
