You’ve probably seen the popular television show Till Debt Do Us Part, where the host puts couples on a “cash diet”. They have to rely on jars filled with a certain amount of cash for their monthly spending. Most of us recoil with horror at such an idea. No credit cards? However, this may not just be a good idea for you to cut back on your credit, but also to help out small businesses in Canada.
Purchasing on Credit Costs Small Businesses
A recent decision at the Competition Tribunal prevents merchants from passing on the high cost of credit card fees to customers when they make a credit card purchase.
Business Can No Longer Pass on Credit Card Fees to Consumers.
There are only two clear winners in this: the credit card issuers and people who make the majority of their purchases on a credit card. The rest of us lose, as retailers who were previously passing on charges have to raise prices across the board in order to recoup their losses from processing credit cards. This decision hurts both small businesses and consumers, particularly where large purchases are concerned.
Fight Back By Paying Cash or Debit
Typical credit card processing fees are between 1.7 and 3 percent, and they go higher with a more premium card. The Canadian Federation of Independent Business states that these fees can be as much as 100 times higher than the fees that a merchant has to pay for a debit purchase. Businesses can’t budget for these costs because they have no way of knowing what the fees are until they receive their monthly statements. Sure, they’re a “cost of doing business”, but it adds a measure of unpredictability to the bottom line of a company.
This is particularly hurtful to small businesses, who traditionally run their shops on tight margins to compete with larger retailers. This in turn hurts the economy as a whole. So how can you help? Pay with cash or debit when you shop at a small business, and keep the credit cards at home. Obviously, this can also help you directly by not increasing your “spend it and forget about it” debt.
How Not Racking Up Credit Helps With Your Mortgage
If you want to shop around for a new, better mortgage, it pays to have your debt under control and be cautious of your credit cards. As we’ve discussed before, the best interest rates are only available to clients with good credit, so the more you can pay down your debt, the less you’ll be paying on a mortgage in the long term. You do need to have two lines of credit, which could be credit cards, with a balance of $2500 or more each, that are not maxed out and that you make minimum payments on. There is no magic percentage that a credit card can be at to make you attractive to a lender; the key is to get the balance down as much as possible before going to get a mortgage.
Keep in mind too that your Total Debt Service (TDS) ratio, that is the amount of monthly payments you have to make, shouldn’t be more than 40% of your income. The greater percentage of household TDS tends to be vehicle loans, but credit cards figure into this as well. Basically, when it comes to credit, the less the better when you’re going for a better rate on your mortgage.
Layaway Making a Comeback
Some stores offering higher-dollar items will allow you to pay items off using a layaway plan. These plans let you pay off items in advance a small chunk at a time, and when they’re paid off, you take them home. This is a great idea for holiday shoppers who tend to put big-ticket items on credit cards, or anyone who knows that they’ll need a higher-priced item in the immediate future.
Essentially, it can’t hurt to go back to the way our grandparents used to shop for items. They only purchased them when they could afford them, and they saved up for items they wanted. This is an idea completely at odds with our “I want it now” demand-driven culture, but what better way to be a rebel? Your bank account, credit report, small businesses, and your stress levels will all be the better for it.