Valley First

Dark Side of Using Credit

Shedding light on the dark side of using credit

Credit card use among young people in Canada is on the rise. While there are benefits to using credit, there is also a dark side that young people are particularly vulnerable to.

Using credit gives young people the ability to pay for essentials that may otherwise have been beyond their reach. It is also essential to building a positive credit score and learning valuable money management skills, says Michael McMorran, financial planner at Valley First.

“In recent years, more and more young people have started out using low-limit credit cards,” says McMorran. “Getting a card early can have benefits, specifically around creating good credit history and achieving a positive credit score, which becomes increasingly important when applying for a loan or mortgage. Responsible credit card use also promotes responsible cash management.”

With the increasing reliance on credit for major purchases, building credit history is pretty much a must. However, McMorran warns this can create a buy-now, pay-later mentality or encourage unnecessary spending.

“While this may be out of step with previous generations who saved then spent, credit is becoming a necessity of life,” says McMorran. “The biggest danger with using credit is the fact that nothing tangible changes hands. It’s easy to overspend when we can’t see the money disappearing from our wallets or purses. This can create some really bad spending habits.”

Bad spending habits that lead to the real dark side of using credit cards, the dreaded “debt cycle”—a situation where people find themselves unable to pay for their purchases and have to borrow more to stay afloat.

“The best advice is always the simplest, don’t spend beyond what you can afford to pay off at the end of the month,” says McMorran. “Like any debt, the key is to not over-extend yourself. As soon as you find yourself in a situation when you can’t pay off a good chunk of your credit card balance every month or you need to borrow more to pay your original debt, you need to rethink your financial plan.”

McMorran says young people are often more susceptible to excessive credit card debt because they don’t have the same level of disposal income as older people nor do they have the same experience in managing their finances effectively.

“Money management is a skill,” says McMorran. “Managing borrowed money is an even greater skill. As we get older we hone these skills and become less inclined to fall into financial strife.”


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