What’s your credit personality?

If you’re trying to get a handle on your financial situation, you’re not alone. In the last issue of Pursuits & Possibilities, we asked readers what their first financial priority was. More than half of you said that paying down debt was your number one goal.

But when it comes to managing debt, there’s no single solution that suits everybody. That’s why we’ve identified three Credit Personalities, and provided individual strategies and tips to help each one.

Born to spend

Your profile: You love to spend, and plastic makes shopping easier. Maybe a little too easy. When the bills come in, you’ve been known to do a juggling act, and sometimes reduce or skip payments.

Your strategy: Tough love may be the answer if you’re getting behind in your payments.

• If you’re carrying a balance on high-interest retail and credit cards, take out a lower-interest line of credit or personal loan to pay it off.
• Resist impulse purchases. If you see something you simply “must have,” walk away for at least 10 minutes and think about it first.
• Leave your cards at home, unless you are planning to make a specific purchase and don’t want to pay cash.

Caught in the crunch

Your profile: You used to be a good saver but somehow, between paying the mortgage and covering necessities, you’re barely making it from paycheque to paycheque. Despite your best intentions, you’ve now accumulated a bit of a balance on your credit card accounts.

Your strategy: Get back on track by revisiting the “big picture” with a solid budget that includes debt repayment.

• Set up overdraft protection to cover yourself during cash-flow emergencies.
• Look at your income and spending over the past three months to find areas where you can save: brown-bagging lunch, switching to a cheaper phone or internet plan or entertaining at home. Use the cash you free up to pay down your debt.
• As soon as you’ve repaid outstanding debts, redirect the funds to paying yourself first, with automatic deposits into a high-interest savings account. You can start with as little as $25 a month— less than $1 a day — and chances are, you won’t miss the money. You’ll build up an emergency fund that you can use if you’re ever caught in the crunch again.

Credit shy

Your profile: You were taught to avoid debt, but your reluctance to borrow may be costing you in the long run. You may be missing out on some important milestones and pleasures.

Your strategy: Reconsider the positive aspects of smart credit use.

• Get a no-fee credit card, use it from time to time, and pay the full balance every month. You’ll build a credit rating, be able to monitor your spending and you could earn rewards points.
• If you have unused RSP contribution room carried forward from previous tax years, consider borrowing to make it up. Get your contribution in by the February 29, 2008, deadline, and it may even trigger a tax refund for your 2007 personal income tax return.
• If you currently rent your home, consider making the move to homeownership. Today’s low interest rates mean that a home often carries for about the same as rent. Not only do you have a place to live, you’re building equity as you pay down the mortgage.

		Tools you can use
		Bills from the holiday season are starting to hit the mail box. There are ways to help you breathe easier. Consolidate your credit card expenses by transferring your balances to a lower-interest product. A line of credit charges a lower interest rate when compared to credit cards, allowing you to save money on interest costs and expedite payment of your balances. Consolidation can also eliminate the stress of multiple bills. Before you transfer your credit card balances, check if your financial institution charges handling fees. RBC has many products that can help you manage your expenses without any fees. Once you have consolidated your balances, always remember to make payments on time, all the time. Skipping payments will affect your credit history.

		In case of emergencies
		Having a cheque returned or an authorized payment refused because you don’t have the funds in your account can be both embarrassing and expensive. It could even affect your credit rating. Consider Overdraft Protection on your bank account as a safety net.

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