The Econ4U Blog
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Tuesday Top 5: Thinking Ahead to Tax Season
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Tuesday Top 5: Factors That May Affect Your Job Search
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Tuesday Top 5: How to Turn Your Car Into a Money Pit
Welcome to this week’s edition of our Tuesday Top 5, Econ4U’s weekly tips post to help you manage your money in five easy steps.
- Making the minimum payments on your credit card is paying down your debt.
Reality: This is technically true, but if you only pay the minimum every month your debt will be more expensive than you’d suspect. Most credit cards have a minimum payment of 4% of your balance. On a credit card with a typical 18% interest rate, it would take more than 10 years to pay off a balance of $3,000, and you would end up paying more than $1,700 in interest. If you paid $150 per month, you would save $1,100 and be debt-free in two years.
Take our credit card quiz » - If you don’t have enough cash to cover your bills, it’s better to pay them late than to get a short-term payday loan.
Reality: Not paying your bills on time can be more expensive than you’d think. Late payment fees are often as much as $50. And a late payment on a credit card can raise your interest rates, even on other cards. While it’s best to keep enough savings to cover unexpected expenses, the typical fee on a short-term payday loan can be an affordable way to avoid much bigger charges from other options.
Read more about short-term payday loans » - It is okay if your mortgage payment is under 50% of your monthly take-home pay.
Reality: Many first-time and inexperienced homebuyers rely on advice from mortgage brokers and real estate agents, who often suggest that 50% is a good rule of thumb for mortgage payments. Payments that high leave little room for unexpected debts and changes in lifestyle. It’s best to stick to mortgage payments that equal closer 33% of your income.
Read more about mortgages » - To boost your credit score, you should cancel any credit cards you haven’t used in a while.
Reality: Credit scores are based on a variety of factors, and canceling unused credit cards can actually hurt your score. 10% of your credit score is based on the length of your credit history, so it’s a good idea to keep your oldest credit card account open, especially if you’re young.
Read more about FICO scores » - You pay no interest on a 0% APR car loan.
Reality: Instead of just thinking about interest rates, look at the total amount you’ll end up paying. For a $20,000 car, you might have the choice between a 3-year loan at 0%, or a $3,000 cash rebate. If you take the loan you’ll pay $20,000. If pay up front and take the rebate, you’re getting the car for $17,000. So while a car dealer may say a loan is interest-free, you could effectively be paying thousands in interest without realizing it.
Read more about car loans »
