October 9, 2014 3:21 pm

Too easy? How to avoid digital payments leading to debt

Tips on how to keep online payments or automatic reloading from sending you into debt.

AP Photo/Manu Fernandez
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TORONTO – You see it on a daily basis: People pulling out their cellphone at a coffee shop to tap-and-pay for their $4 latte in a matter of seconds, a co-worker making a quick purchase on an online shopping site before the manager walks by, or inserting your credit card and waiting to see what the price of a full tank of gas will be.

Not to mention the services you sign up for on a monthly basis that automatically re-load your payment information without any legwork on your part.

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“Normally the problem is you’re using credit to reload it,” said Donna Milacheon, trustee in bankruptcy and senior vice president at BDO Canada Limited. “As opposed to taking cash out, feeling the pain, handing it across—using an auto-device has no pain. So it’s very easy to just give it away…and tends to create lots of issues in terms of people just not staying on top of their spending.”

A study from PayPal Canada released Wednesday suggested 62 per cent of Canadians surveyed use mobile payments “without giving it a second thought.” And though it can be an efficient way to buy things for people who are aware of their budgets, it can be a risky road to debt for others.

“The click of a button doesn’t have that same sort of physical attachment…even though the results [a loss of money for you] are the same,” said Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada.

Schwartz said he’s all for advancing technology, but worries for people who are already carrying debt or aren’t paying attention to their finances. He suggested the digital methods allow marketers to influence consumer behaviour because of both how easy it is to buy products, and the fact that many services give suggestions of products based on what you’ve searched or what the last person to use the service has purchased.

“We don’t have that pause where we’re thinking about decisions that need to be made on needs versus wants,” he said.

“Sometimes you need to take a step back and determine whether that’s the case, as opposed to looking at the bottom of the page where other buyers bought this product that you just bought…[and] are you interested?”

So how can you use new digital payment services and auto-reloading features responsibly? Both Milacheon and Schwarz emphasize the importance of keeping track of your finances—whether it be through apps, a spreadsheet, a monthly review of your bank statement, or even keeping a budget booklet in your pocket to keep track of where your money is going.

The Consolidated Credit Counseling Services of Canada suggests the following tips to keep people grounded:

  • Try a budgeting app –Keep track of spending with a budgeting app like Budget Tool [iTunes link] or through services offered through many banks while watching your bank account balance.
  • Avoid credit –Instead of linking your credit card to online purchases, try using debit systems so you pay with your chequing account.
  • Think through purchases – Take time to consider your purchase, and disable settings that automatically fill in your payment details. You could also try returning to your purchase 30 minutes later to assess if it’s a want or a need.
  • Beware of fraud –Pay attention to transactions and review your credit card statement and credit score regularly to see if anything unusual is happening.

Milacheon said she often sees people in stores who don’t take their receipts, saying they don’t “need” them, but emphasizes the importance of keeping records and reviewing areas in which you may be overspending and can cut back.

“You want to start saving for that rainy day…anywhere from three to six months of income in the bank in case something happens,” she said. “How do you know where you’re going if you don’t know where you’ve been?”

© 2014 Shaw Media

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