Jonathan Chevreau

Jonathan Chevreau has authored or coauthored eight financial books, including "Smart Funds Guides," "The Wealthy Boomer" and his latest storytelling masterpiece, "Findependence Day."

In this exclusive Q&A with CreditCards.ca, Jonathan focuses on how Canadian families can use credit cards safely.

CreditCards.ca: What are the top five lessons learned from "Findependence Day" about credit card debt?

Jonathan Chevreau: "Findependence Day" is a financial novel. The opening scene features a young indebted couple on a financial reality television show, with the engaging host urging the wife (Sheena) to tear up her cards on camera. When she breaks down and can't do it, she's publicly humiliated, which sets the plot in motion. Their journey provides a roadmap of lifesaving financial lessons:

Lesson 1: Avoid using credit cards altogether if possible, giving preference to cash and debit cards.
Lesson 2: If you're disciplined enough, you can keep one card with a low limit for emergency use or to gather reward points.
Lesson 3: Whatever minimum balance you have, you should pay off the balance in full at the end of each month or payment cycle, so as to avoid paying any interest.
Lesson 4: Just paying the minimum monthly payment is not the same as paying off the full balance: paying off the minimum monthly payment is what the financial institutions want you to do, since that's how they make their money. But for consumers, it's a sure recipe for the poor house -- hence the painful opposite of "Findependence Day."
Lesson 5: Automate the payments on the card by getting the bank to automatically pay it off before interest comes due.

CreditCards.ca: Do you or other family members own credit cards?

Chevreau: Yes, our family is just my wife and I and a 19 year-old daughter in college. Most of our expenses go to my wife's Visa card, which provides reward points for travel and other purchases. We've set this up with the bank, which automatically pays outstanding balances just before they come due; thus while a typical monthly balance is in the thousands of dollars, we never pay an interest charge.

I personally use a different Visa card for the occasional business-related purpose: usually books, magazine subscriptions (online these days) and the odd purchase from Amazon.com. These tend to be a few hundred dollars per month and again we pay it off before interest is due.

CreditCards.ca: When it comes to using credit cards, are there different rules for Canadians with either sustainable or unsustainable earnings?

Chevreau: As in our own example, with sustainable earnings (preferably double income), credit cards can be convenient as long as the full balance is paid off in full before the interest rate cycle hits. Note I suggest paying off the full balance, not just the minimum monthly balance.

When earnings are unsustainable, you could have one card with a very low ($500) limit to be used for absolute emergencies -- like buying life-saving drugs for a child or elder, for example.

CreditCards.ca: Should young people own credit cards? How about senior Canadians?

Chevreau: Our daughter didn't have even one credit card for her first two years of university; we reluctantly let her get one quite recently with a low credit limit ($1,000 I think but I'd be happier with $500).

If it can be viewed as an alternative to cash and if all the above five lessons are learned then it may be justified as an occasional source of emergency funds -- maybe you forgot to go to an automated banking machine, lost your debit card and are out with friends at a restaurant. In this case, when home the next day I'd go online and make a payment comparable to the amount you would have normally paid by debit.

Some would argue that it's good for young people to establish a good credit pattern: paying off balances or at least the minimums consistently enough to develop a good credit rating. So, later they can qualify for auto loans or ultimately a home mortgage.

As for seniors, presumably they got to old age and retirement by being financially prudent. If their main source of income is government pensions, then I'd be wary of their using credit cards much apart from the emergency reason cited above. Seniors too should abide by the five lessons above.