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smallenfreudenIt seems to be all the buzz lately... but what exactly does it mean? Smallenfreuden is an English/German portmanteau meaning "the joy of small". Visa's latest campaign is targeting smaller, daily ticket items. Charge your coffee, your lunch or your hotdog at the ball game. The idea being that you're paying for it anyway, why not charge it and collect your reward points.

Since these items are usually paid for out of your bank account, logic would tell us that when the bill comes in you would have reserved the funds to pay the credit card in full; however, statistics tell us that is not always the case. The Canadian Bankers Association reports that over 36% of Canadians report that they carry a balance on their credit cards. Canadians sure love their plastic... we have more than 50 million visa and mastercards, and have charged an overwhelming (nearly) 50 billion dollars to them. To add to that we have 24 million more in retail cards (CBC news).

The "rewards" seem to be the biggest buying feature for credit cards today: air travel, gas savings, cash back, movie tickets, concert tickets, cruise packages - the options seem endless. So what's the downfall? Let's assume you owe $10,000 on a credit card with an 18% interest rate. Let's also assume that on a monthly basis you make the minimum payment of 3% or $10, whichever is greater. Here comes the scary part - it will take you a total of 272 months to pay off that debt. And what's worse... you'll pay almost $9,800 in interest. This of course is assuming that during this 23 YEAR period you haven't charged anything else to your card.

So how do we avoid this?
- If you use to credit cards to "smallenfreuden" we recommend paying them off at each pay period. This helps to ensure that when the bill arrives at the end of the month (on a non-pay day) that you won't be carrying a balance into the following month, and more importantly you wouldn't have over spent!
- Don't assume you have more disposable cash (and therefore can increase your spending) because your bank account isn't declining with each purchase.
- Communicate your plans with your partner - especially if you have a joint bank account. This will avoid one partner thinking there's more money available than there really is.
- Limit the number of credit cards you have/use. These are not collector items. Mortgage lenders like to see that prospective buyers have two (2) tradelines with a minimum of a $1500 limit, that have been open and active for two years or longer.
- Always make a payment to your account by the due date. Even if you can't make the full payment, make a partial payment (as little as $5 will suffice). This will end up saving your credit rating.
- Avoid taking cash advances - the interest for this advance is usually calculated differently and is very expensive.

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