Homes & Gardens: Buy now, pay later?

That new patio set would look great in your backyard – and, better yet, you can buy it now and not pay a cent until 2007! A new deck for the cottage would make summer living at the lake even more fun – and, better yet, the renovation supplies store is offering a total tax rebate on lumber just for putting the purchase on your credit card! That giant plasma TV would be perfect for watching baseball in all its high-definition glory – and, better yet, you can take delivery today and pay for it in 36 low monthly installments!

It's plain to see that credit is easier to get than ever before – and the statistics prove it: According to the Bank of Canada, household debt in Canada grew by nearly 9% in 2004 and Statistics Canada reports that Canadians' savings rates declined by approximately 3% in the first three months of 2004.

So are special credit deals and convenient payments a good thing? Not necessarily. They can end up carrying a high cost not only in escalating interest charges, but also because consumers usually must use a significant portion of their future income stream to repay those debts sometime down the road – “lost” money that could have been invested or saved.

The key is to avoid the debt treadmill, but if you're already on it, here are some strategies for getting your debt under control:

Resist the urge to spend

Make it more difficult to haul out that credit card by leaving it at home or sticking it deep into your wallet or purse so you'll have time to reconsider each purchase.

Borrow to save

Take out a lower-rate personal loan to pay off high-interest credit card balances – you'll save on interest charges and this could help you get out of debt faster.

Pay higher rate credit card debt first

When you use the retailer's card to pay for that $1,000 plasma TV, you're likely paying an annual interest rate of at least 18%. If you don't pay the balance, you'll be on the hook for $180 in interest each year.

Be card sharp

Get rid of extra-high interest rate retail cards and premium credit cards that provide purchase protection or airline points, but charge inflated interest rates or fees for these “privileges”. If you find cutting up your card too hard to do, consider asking your card companies to lower your credit limits.

Stay away from your RRSP

Don't fall for the quick and easy answer to paying off your high-interest debt by using some of your Registered Retirement Savings Plan (RRSP) money.

When you remove cash from your RRSP to pay a debt you'll have to pay income tax on the money you withdraw, and you'll forfeit the years of tax-deferred growth that would have contributed to your retirement lifestyle.

Smart consumers use their credit, including their credit cards, wisely to avoid becoming overburdened with debt. A financial advisor can help you avoid credit card overindulgence and improve your long term financial health.

(Submitted by Damon Smith, Investors Group Financial Services Inc. For more information call 888.335.1362).

This column, written and published by Investors Group Financial Services Inc. (in Quebec – a financial services firm), is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.

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