It's easy to lose track of spending with credit and debit cards
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Liza McEwan wanted her phone to stop ringing. The St. John's woman (her name has been changed for this story) and her husband had amassed about $60,000 in credit card and retail debt over five years, and creditors were calling constantly.
The couple had been managing the debt, but when her husband lost his job, they had difficulty making payments.
Still, it was difficult for the couple to ask for help, until four years ago when they called Credit Counselling Services of Newfoundland and Labrador. The organization assessed their financial situation and came up with a payment plan, accepted by their creditors, and helped the couple make changes in their own spending habits.
"We got rid of all our credit cards, and they sent a proposal to each one of our credit-card holders," said McEwan, 50.
It took about three years - her husband found another job - to pay off the debt, and they don't use credit cards anymore.
But that presents its own challenges in an increasingly cashless society, she said, noting it's almost impossible to book hotels or flights without a credit card, for example, even with cash.
Since paying off their debt, the McEwans have socked away the money that had been going to creditors and are ready to reward themselves - after years of sacrifice - with a vacation, paid for with the money saved.
"We find that with no credit cards, it is hard to book a plane ticket, a hotel room or whatever else the case may be," she said, adding that she feels businesses sometimes discriminate against people who don't have or choose not to use credit cards.
"Credit is so easy to get. Why do we have to have a credit card to book a hotel room? And why do we have to have a credit card to book a plane ticket? I still find that hard to grasp and hold on to, especially when if you do have the cash in your hand, and it's only a matter of going to a travel agency or running up to the airport and pay cash for it.
"Cash has become almost obsolete, right now, and that's why I think people get into so much trouble, because they get in over their head because it's only the swipe of a card."
A recent study by credit monitoring firm Equifax Canada suggested the same thing: Canadians lose track of their spending when they rely too much on credit and debit cards.
Derrick Hutchens, a trustee with Janes and Noseworthy, agreed that it's easy for people to lose track of how much they spend when it's a series of cashless electronic transactions.
"Retail credit is very easy to get. You're walking through an airport, the financial institutions are there saying, 'Gee, no problem. Get a credit card, get so many thousand points. Interest rates are low,'" he said.
"They're practically giving it away, begging you to take it, and coupled with the fact that in your mail, week after week after week, you'll get applications from financial institutions saying, 'Here's some cheques. Here's a line of credit for you. Here's a Visa card,. You're already pre-approved. Just sign here.'"
Some people can handle the debt, but for others, said Hutchens, things can spiral out of control, which is often when they come to see him.
A trustee for 30 years, he's not sure if people are more or less likely to get in debt than they were three decades ago, but the ubiquity of electronic transactions doesn't help.
"At the end of the day, cash is king," he said.
"But very few people actually deal with cash today. You don't go to the bank anymore. You don't get your pay at the end of the week ... and go to the bank and cash it," Hutchens said. " Everything is paid by credit card. Everything is bought over the Internet on credit card. You buy you gas, go to the convenience store, everything is credit card or debit card, and the actual dollar bills, whether they're $20 bills or $100 bills, you don't see them anymore, but at the end of the day you still have to pay, and you still have to have the resources to be able to meet those obligations."
Pricewaterhouse-Coopers vice-president and trustee Greg Gosse said one of the first things he does with a client is go over their spending - it's often the smaller transactions that people are losing track of, he said.
"It's not uncommon for an individual to not know what they're spending their money on," he said.
"They know what their minimum payment was on the credit card, they know their mortgage and their car payment, that kind of stuff. But when it comes to discretionary expenditures - clothing, and even food - very often, they don't know what they're spending each month. And that's more now with debit cards than it was before with cash."
Adam Cardwell, senior financial counsellor of Credit Counselling Services of Newfoundland and Labrador, said people often aren't fully aware of how much they've spent after a day running errands using just debit or credit cards.
"You don't have any real concept of how much you're spending. I'd say very few people are adding those numbers up in their head," he said. He cautioned that dealing only in cash can prove difficult for others as well - for some, cash withdrawn is cash spent, even if it's supposed to last or be set aside for Christmas, or house repairs or a vacation.
Cardwell said while the organization's clients used to be primarily people on fixed, lower incomes, it's starting to see more people with above-average incomes, which often means a higher total debt.
"The amount of money that people owe has definitely increased," he said.
In most cases, said Cardwell, people manage their debts until an unexpected event, such as death or job loss, and that's when trouble arises.
But whether a person owes $10,000 or $100,000, the solutions are usually the same, said Cardwell.
"You have to spend less, you might have to downsize, and you're going to have to make sacrifices to pay off this debt," he said.
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