When to use a credit card
Experts share their top seven tips for how to use — and not use — plastic.
Despite their bad rap, credit cards can be useful tools. In particular, they can help consumers build good credit, says Patricia White, executive director of Credit Counselling Canada in Toronto.
"Being responsible with credit by paying bills on time and in full will ensure a good rating," says White.
But you need to use plastic responsibly. Here are the top seven uses for credit cards, according to the experts:
No.1: Tracking your expenses
Credit cards give cardholders the ability to determine where they are spending their money, says White. "Besides your monthly bank statement, the credit card statement will clearly indicate where you have spent and how." In other words, the proof is in the pudding — if you choose to look.
Your statement is also a great organizational tool that can help you categorize your spending, says Jeffrey Schwartz, executive director of Toronto-based Consolidated Credit Counseling Services of Canada.
No. 2: Putting a limit on your spending
Pre-set amounts on your credit card can help to limit your spending, says Schwartz. "This is especially helpful with young adults. If you are co-signing a card ... that can really help to teach a young adult how to properly utilize their spending." This can also be done with a regular credit card — you just need to have a lower limit.
No. 3: Collecting rewards points and deals
Cards that have rewards points attached to them can be great for cash back, free groceries, travel points and sometimes even dollars toward the purchase of a car, says Schwartz. And certain companies, such as American Express and Costco, will offer access to special deals because you're a cardholder, adds Schwartz.
But one important point to remember is that a lot of these reward credit cards will charge an annual premium that can be costly if you are on a limited income, says Elena Jara, education coordinator at Credit Canada in Toronto.
No. 4: Exchanging currency
Credit cards can provide the convenience of paying in other currencies, says Jara. "This can save you money in the exchange as well as other fees connected to the conversion."
No. 5: Keeping your money safe
Over the past couple of decades, we have become a cashless society, says White. "People don't carry large amounts of cash any longer basically for safety reasons and having a credit card enables this, especially for travel."
Credit cards can also provide security as some will ensure that you get what you pay for and reduce fraud, adds Jara.
No. 7: Taking advantage of sales
Simply put, credit cards enable you to take advantage of sales, says White. "This is only useful when you have the money available to pay the statement in full so you are not charged interest." White says to keep in mind that interest charges may no longer make your purchase the great sale item you thought it was.
One or two cards
In order to use credit cards most effectively, opt for quality over quantity.
"One is best," suggests Schwartz. "Anything more than that and you have to look at your ability to manage or avoid temptation."
But it might be helpful to have more than one card in order to categorize your spending, he adds. "Many people have a business spending card and a personal spending card."
However, consumers may wish to have two cards, adds White. While using one of the cards, the other one can stay in a safe place just in case your wallet is lost or stolen.
Whatever the number of cards you have, ask yourself — before you swipe — if you can justify the items you're charging. "Whenever possible, the consumer should use credit when they know that they can truly afford the item and that they have budgeted for the goods and services they are buying," says Jara.
And be sure you're paying off your bill at the end of every month or, at the most, 60 to 90 days out, says Schwartz.
Some other benefits:
- Credit cards provide the convenience of "buying now and paying later," which can save the consumer a lot of money on retail store interest, says Jara.
- Some credit cards may provide additional insurance, such as trip interruption insurance, delayed and lost baggage insurance and car rental collision insurance. That being said, be sure to investigate the type of credit card that is most appropriate for you, says White.
- Using a credit card for your purchases gets rid of the need to balance your chequebook more than once a month. All you have to do is track your spending via your statement, which you'll see once a month when you pay it off.
Vanessa Santilli is a writer in Toronto.
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