Young Canadians not managing credit cards wisely

For a young credit card holder, getting that first taste of plastic can be a liberating experience. But learning how to use a credit card wisely doesn't come naturally.

Though this may be no surprise to parents, a recent survey of young Canadians between the ages of 18 and 34 finds them actively using credit cards -- but not necessarily wisely or thoughtfully. gen-y

The TD Canada Trust Credit Cards and You poll found that more than half of respondents are not paying their credit card balances in full at the end of each month. About 40 per cent are making only the minimum monthly payment, and 23 per cent said they have missed a monthly payment.

On top of that, Generation Y consumers - those born since 1983 - have increased spending on luxury goods, travel and fine dining since 2009.

Carmen Wong Ulrich, author of "Generation Debt: Take Control of Your Money," says the problem is with education. "Unfortunately, financial education is not a requirement, but somehow calculus is?" she says.

Ulrich recommends that young people educate themselves by reading the news and subscribing to a personal finance blogs "Know the ins and outs of everything you sign and be very realistic about your ability to pay back what you borrow. When it comes to your money, make small sacrifices now so you don't have to be denied savings later."

Here are some other tips to get started:

Pay the minimum: Failure to make your credit card's minimum payment within 30 days can result in an interest rate hike and the loss of any promotional rates. But remember, if you pay more every month, you can pay off your balance sooner and save money on interest. And if you can't pay the minimum, contact your card issuer immediately to explain your situation and to see if they will work with you.

If you can, try to pay more: It's wise to pay off any outstanding credit card debt as quickly as possible. If you're carrying a $2,000 balance at 19.99 per cent interest rate and only making the minimum payment every month, it will take you more than nine years and over $3,700 including interest, to pay it off.

Avoid depending on your credit card: Eighteen per cent of respondents to the TD Canada Trust poll said they use their credit card to supplement income and 14 per cent said they routinely max out one credit card and need another as backup. If you find yourself using your credit card a lot for necessities, then you are most likely living beyond your means. Using credit to pay off another credit card is a sure sign that you are over your head in debt.

Though mismanaged credit cards can lead to bad behaviour, a well-managed credit card account is an important step to financial responsibility. "Using your first credit card responsibly is a smart way to establish a strong credit rating and help set yourself up for an attractive interest rate when you apply for your first car loan or mortgage," says Stephen Menon, associate vice-president of credit cards at TD Canada Trust.

See related: Coming to terms with student loan debt, Credit report tracking critical for Canadians

Updated December 19, 2016

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