No matter what stage of life you are in, managing credit or loans is a critical skill that you need to develop in order to achieve your financial goals. In life, it doesn’t matter how much you earn. But, if you are not disciplined with your finances, you won’t be able to hold the money.
In Canada, many people are financially literate and can make appropriate decisions that would make their lives easier. But not all people are good with their finances. Almost 61% of Canadians are financially literate, which is far better than most countries in the world. But the remaining 39% still need to improve their financial knowledge.
There are many institutions that provide easy access to fast cash loans in Canada. You can get a loan from them at a decent rate with a flexible tenure date. These loans are available to help you get through a tough situation easier. However, you can easily get overwhelmed by loans if not handled properly. So, in this article, we will learn about credit and its influence on our lives.
How is Credit Helpful?
Credit is an important factor when talking about financial literacy. Moreover, credit also helps improve the GDP of the economy. How? It is a long cycle that occurs.
When consumers or normal people take out loans of any type, be it easy fast cash loans Canada or no credit check instant loans, it increases their purchasing power, which means people can now purchase more, which will increase the economic activity within an economy. And as the flow of money rises, so does the country’s GDP.
How can Credit Overwhelm a Person?
Despite being an important instrument in finance, credit can be bad for people who have poor financial knowledge. Even easy, fast cash loans and no credit check instant loans can become a problem if not managed properly.
Let’s understand this by the example of using a credit card.
If a person applies for a credit card with the sole knowledge that this card helps them buy stuff on credit, they are surely moving towards a situation called a debt trap. A debt trap is
So, let’s say a person earns $5000 a month and has a monthly credit spending of $1000. Of course, this means at the end, he has to pay the money back. However, credit companies offer a person to make either full or minimum payments and continue using the credit card.
If you are making full payment and there is no credit balance carried forward to the next month, then you can rest assured because that is the right way to use credit cards.
However, if you are making minimum payments, for example, $100 to settle a $1000 bill, the rest of $900 will be carried forward to the next month. And if you are using credit to make transactions, it is quite difficult to stop credit usage. As a result, you will eventually have more bills than income.
So, if you used $800 in credit next month, your total bill will be $1700.this time, the credit card company gives you the option to make a minimum payment against your bill, like $200 to settle a $1700 bill. It may seem good to make a minimum payment. However, this bill will pile up and eventually start incurring interest.
And if this bill crosses your monthly income, this situation is called a debt trap. Without a doubt, your credit score will suffer, but so will your personal life.
Consequences of a Bad Credit Score
- Difficulty getting a loan
The first and foremost problem you will face is not getting approved for a loan. This is something obvious. A credit score is the basic credit standard accepted worldwide, and if you have a bad credit score, you can expect your future loan applications to be rejected. - Higher interest rates
Even if you manage to get approved by a lender, you will be offered a loan at a higher interest rate. This is because the lender is taking a higher risk by offering you a loan and risks defaulting on the payment. And as a general rule of finance, higher risk means a higher return. - Difficulty getting a finance job
Getting a job is difficult in the finance sector or jobs that deal with money with a bad credit score. Many employers in the finance sector look for a good credit score because it tells them how good you are with your personal finances. And if you are not good with your personal finances, a company won’t trust you with their financial matters.
Can you Get a Loan with Bad Credit?
You can easily access fast cash loans in Canada with a bad credit score. Online loan lenders, such as PrestoCash, provide quick loans even if you have a poor credit score. In addition, they are proficient at providing no-credit-check instant loans to people.
How to Manage Credit?
- Allot or segment your income
The first and most important thing you can do if you have fallen or save yourself from falling into a debt trap is to segment your income. This is a crucial stage that will define your other aspects of personal finance. The moment you receive your salary, segment it and put it into different accounts. Set aside some money for your needs, some for your wants, and some for savings. If you only have one account, then send your money to your parents’ account and tell them to give it to you only when you ask for it. - Pay off your credit card in full
Paying your credit in full will ensure you never carry your credit to the next month. So, whether it’s a loan or a credit card bill, always make a full payment to settle your bill. - Take calculated risk
Risks are an important part of the credit, but that doesn’t mean you should just jump into a pool without knowing how to swim; of course, you will drown. Taking a calculated risk means thinking about everything before you get a loan. For example, the interest rate, other expenses, any backup fund, and what if you couldn’t pay the monthly. After finding answers to these questions, then make a decision.
These are the essential part of credit management that plays a great role in personal finance. So, if you have a bad credit score, start by paying off your debt before focusing on improving your credit score. However, if the situation asks, you can also make easy, fast cash loans in Canada or apply with online lenders to apply for no credit check instant loans.