In today’s world we have many different choices on how we can pay for something we want to buy. This section will explain many of the options people have to do this.
The one that is most familiar to all of us is to pay for a purchase using cash. We simply reach into our pocket or open our wallet and if we have enough money we can buy the things we want or need. Be careful to keep your money in a safe place. If you lose your money there is no way to get it back. For safety reasons it is a good idea to never carry too much money with you. If you lose too much cash you may not have enough to pay all of your expenses.
Using cash can be a good way to control your spending. Take only a predetermined amount of cash and limit your spending to that amount. To learn about Canadian coins and how to make change try ConnectABILITY.ca’s Money Magic arcade game http://connectabilitypro.com/2010/10/01/money-magic
Cheques are one way to pay for purchases or bills when you do not have the cash on hand or would like to have a record of your spending. With the increased popularity of credit and debit cards (mentioned below) cheque payment is not as common as it once was. Cheques are still useful for making payments when cash is not a good way to pay, such as making a payment through the mail. Never send cash in the mail. This is because there is a higher risk it could be lost or stolen. If you send money in the mail you do not receive a receipt right away, as you do when you buy something in a store. Before writing a cheque, make sure there is enough money in your bank account to cover the cheque. When the cheque is cashed money will be taken out of your bank account. If there is not enough money in your account, you will be charged a NSF (Non-Sufficient Funds) fee of $15 to $45 by your bank. If the cheque was for a company or store, they may also charge you a NSF fee of $15 to $30. Writing a cheque and not having enough money in your bank to cover the cheque could cost you a lot of money.
A credit card allows you to go into a store and buy something even if you do not have the cash to pay for it right now. Credit cards are issued by banks to people. In order to receive a credit card you must fill out an application. The bank will then review the information on the application to determine if you qualify to get one. The bank looks at how much money you have and how much you earn to decide if you are a person who will have enough money to pay for the stuff you purchase with your credit card.
Credit cards are plastic cards that fit into your wallet. To buy something with a credit card your card is swiped in a machine with the store teller. You must then sign your name on a receipt to show you approve of the purchase. You may also put the card into the machine. If you have a computer chip card, insert it into the machine and use the PIN, you will not be required to sign the receipt.
The machine reads information on the card and you then enter a PIN (Personal Identification Number) that only you know. Entering your PIN is good security because nobody else should know what your PIN is and will not be able buy anything with your card. You should never give your PIN to anybody. You can set the PIN on your card using the ATM-bank machine. If you are unsure how to do this you can ask the bank teller and they will assist you.
Credit cards make buying things easy. But, be careful! When you use a credit card you are spending money and will have to pay the credit card company when the bill comes in the mail. If you have bought too much on your credit card you may not have enough money to pay the bill and all of your other expenses. When you do not pay the credit card bill by the due date you are charged interest. Interest is extra money you have to pay the credit card company. Interest rates can be as high as 20%. That means for every $100 you spend with your credit card you will have to pay an extra $20. So, the $100 purchase is now costing you $120.
Be very careful when using a credit card because it is very easy to spend too much and end up owing a lot of money!
If you are unable to make the full payment, it is very important to pay at least the minimum monthly payment each and every month so that you will continue to have a good credit history. Your credit history could have an impact on a number of areas including renting an apartment.
Debit cards look very similar to credit cards. The big difference is that debit cards allow you to buy things by taking the money you have in your bank account and transferring it to the store. You can only make purchases with a debit card if you have the money in your bank account. If you do not have enough money in the bank, you cannot buy what you intended to.
An advantage with debit cards is that you can never spend more than you have in the bank. That means you will not end up owing a lot of money for things you purchased.
It is still very important to make sure you do not over spend with your debit card. If you buy something using your debit card, make sure you leave enough money in the bank to pay for other expenses you have, such as groceries, rent, phone, cable TV and other bills.
Debit cards are used the same way as credit cards. They are either swiped or put into a machine at the cashier and you then enter your PIN. Just like credit cards- Never give your PIN to anyone!
For more information on debit cards and safety see the article “Debit cards, Online Banking and other Bank Account Information”.
Pre-Loaded (Pre-Paid) Credit Cards
Pre-loaded credit cards are used just like a regular credit card except you must pay money on the card before you use it. So, if you have one of these cards you go to the bank and give the teller money or have the money transferred from your account to the card. You can then buy things with the card until you spend all the money you loaded on the card. The advantage of having a credit card like this is that you can put just as much money as you can afford on the card. It works well when you are budgeting, as you can make sure you leave enough money in the bank to pay your other expenses. Also, like a regular credit or debit card you need to enter a PIN when making a purchase. This means that if you lose the card nobody else will be able to use it. There are often service fees that you will be charged when using a pre-paid credit card so check with the bank before making this decision.
Before you start using a credit card, pre-paid credit card or a debit card make sure you understand what fees you may be charged. If you need help understanding what the fees are and how much it will cost you to use it, bring someone you trust with you. This person can be a family member or a support staff who can help you make an informed decision.
What Happens if I Lose my Bank Card, Credit Card, or Pre-Paid Credit Card?
From time to time bank cards can be lost or stolen. It is helpful to record your card numbers and keep them in a safe place so you can call the credit card company or bank if you lose the card. The card will then be cancelled and nobody who finds it will be able to use it. You will then be sent a new card with a different number on it. You will also be sent a letter in the mail with a new temporary PIN number. You can change your PIN number at a later date so that it is a number that is easily remembered and unique to you. Never write your PIN on the card because if someone finds your card they will have the PIN and be able to use it.
Useful resources about Pre-paid Credit Cards:
Canada’s Best Prepaid Mastercard and Visa Cards: Reloadable and Non-Reloadable “Credit Cards” http://dan.matan.ca/Canadian-Prepaid-Mastercard-Visa-Card-Reviews-Information
Credit Cards, Financial and Consumer Agency of Canada
Store Cards, Grocery Cards & Gift Cards
Store, grocery and gift cards are basically the same thing. They are used just like a pre-paid credit card. Money is loaded on the card and the card can be used until all the money is spent. The main difference between these cards and pre-paid credit cards is that they can only be spent at the store they were issued at. For example, a Wal Mart gift/ store card can only be used at a Wal Mart. These cards do not require a PIN. So, if you lose the card anyone can use it.
Purchasing grocery cards is a good way to make sure you have enough money set aside to buy the food you will need for the month. If you buy $200 in grocery cards for No Frills or Food Basics you can only use the card at that store. This means you cannot spend the money at other places. Using these cards is a good way to help budget your money.
Automatic Withdrawals (Preauthorized Withdrawals)
You can also set it up to have money taken directly out of your account to pay a bill. This can only happen with your permission. Automatic withdrawals, also known as pre-authorized withdrawals, are a way to pay for bills or services directly from your bank account. To set up this arrangement you must provide your bank account information to the company you want to pay. This is often done by giving the company a cheque with your account number on it and the word VOID written across the cheque. Writing VOID on the cheque will prevent anyone else from using that cheque to take money from your bank account. Also, most banks have a pre –authorized payment form that can be used in place of a void cheque. This form is free of charge and contains the institution number, transit number and account to help direct deposits to or take payments from your account.
Automatic withdrawals are normally used for bills that are paid on a regular basis, such as phone, cable TV, internet service, magazine subscriptions, etc. This type of payment arrangement is not normally done for one time purchases.
It is a convenient way to pay bills. It prevents you from forgetting to pay your bills on time. However, it is important that you make sure you leave enough money in your bank account to pay the bill. You must never forget that the bill needs to be paid or take too much money out of the bank. In these situations, when the company attempts to withdraw the payment there would not be enough money to cover the cost. If you do not leave the proper amount of money in your account to cover the bill the bank and the company you owe money to will charge you a NSF (Non-Sufficient Funds) fee. This can range from $15 to $45 from both the bank and the company you owe. That means not having enough money in your bank account to pay for the bill could cost you a lot of money!
Pay as you go plan
Pay as you go plans have increased in popularity recently. These monthly payment plans do not require you to sign a term contract. In a term contract you agree to pay a monthly fee for services such as cell phones or fitness clubs. With pay as you go plans you receive the service for the month. If you do not have the money or choose not to continue with the service the following month there is no penalty or early cancellation fee. If you decided to continue with the service, such as a cell phone, you simply need to make the payment for the month and the service will be restarted. You have the freedom and flexibility to start and stop whenever you decide.