Using your credit cards without really knowing how much they're costing you, while telling yourself you can afford them, is putting your financial health at risk by allowing yourself to be infected by the money-eating bacteria.
Not always a choice!
Of course, we don't always have a choice: when the dentist sees us in a hurry, for example, or when the refrigerator gives up the ghost in the middle of summer, we click! But we all know someone whose credit cards are maxed out and who drives a luxury sports car they can't afford to maintain properly.
Money-eating bacteria
Here's an example of how card balances can mutate into money-eating bacteria. Paying off a $5,000 balance at 19.99% interest with a minimum monthly payment of 3.5% ($175) would take 16 years and one month, with an interest cost of $9,349. We can't say it enough: card issuers take advantage of consumers. Imagine having 3 or 4 cards like this, which are common because one is used to pay the other, and the descent into hell begins.
Late payments
The first consequence of excessive credit card use is that sooner or later you'll fall behind on your payments. It doesn't matter if you pay twice the minimum the following month, the damage is done. Even a small missed payment will show up on your credit file and send your precious credit score plummeting.
Credit score
The credit score is a snapshot of a borrower's profile. Its number, which ranges from 300 (poor) to 900 (excellent), determines the financial risk the consumer poses to a financial institution. To obtain a car loan, the rating is the first criterion used to determine financing terms.
Useful links : Credit code
2nd Chance Auto Loans
While late payments can damage your credit rating and make it harder and more expensive to get credit, we're not always at fault. An accident, illness or job loss sometimes forces us to stretch the elasticity of our financial resources. That's why 2nd chance credit was developed some thirty years ago.
Useful links : Car loans
The Role of the Credit Analyst
To apply for a 2nd chance car loan, you need to consult a credit analyst. The role of this professional is to explain the circumstances of a poor rating (e.g. divorce) to the lending institutions and to emphasize the borrower's current ability to repay rather than his or her credit history. He'll probably also advise you to keep only one credit card (the oldest one) and manage it well to get your credit back on track.
Note: To help us manage our credit cards, the Office de la protection du consommateur offers a tool to calculate minimum payments, repayment periods, etc.
Useful links : Credit analysis
Tool link : Consumer Protection Office