Spend more with a credit card

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You may know the old adage “neither borrower nor lender”. But borrowing and paying back responsibly can actually work to your advantage when it comes to credit cards.

Using a credit card responsibly by keeping your expenses to a minimum and making payments on time each month shows financial institutions that you are good at managing your money and that you can trust their money in the future if ever. you need a higher credit limit or a loan.

However, charging expenses to credit cards could also open the door to overspending and ultimately lead to an unmanageable debt balance. Here’s what you need to know about paying with plastic.

Psychology of credit cards

When it comes to credit cards, you might find that using them as your primary form of payment can take away the feeling that comes with shelling out cold, hard cash. You might lose track of how much you’re spending when you can’t physically see how much you’re spending. AKA: the pain of paying.

According to Dilip Soman, a researcher at the University of Toronto, those who are used to using credit cards as a method of payment tendency to overspend more than those who are used to paying in cash or by cheque. However, it’s important to remember that keeping tabs on your spending is key to ensuring you don’t overdo it and receive a bill that could throw your budget off balance.

If you want to set yourself up for success, set spending alerts on your account that will notify you once you’ve spent a certain amount. You can also automate your monthly payment so you don’t accidentally forget to pay your bill and regret it later when you find your credit score has dropped a few points.

Advantages of credit cards

Credit cards, when handled responsibly, can be a valuable financial tool for making larger payments more manageable, earning rewards, and building your credit so you can qualify for lower interest rates. on future loans. Whether you’re a jet-setter looking to save on your next adventure or just want to get some cash back on your regular spending, using a credit card that’s right for your spending habits can be incredibly rewarding and you save a lot of money in the long run.

If you already have a few debit cards and are wondering why you want to add a credit card to your wallet, here is an overview of the difference between credit cards and your traditional debit card.

Funds can be used to spread purchases over time, even if you don’t have the money at the time of purchase Funds are drawn directly from a checking account
Build Credit History Doesn’t build a credit history
Can lead to spiraling debt if not managed properly Preferable for those who want to avoid debt accumulation
Interest applies if the balance is carried over from one month to the next No interest charges
Requires a signature to complete the transaction Requires PIN to complete transaction
Limited liability for fraudulent purchases You could be responsible for fraudulent purchases
Fees include late, returned payments, balance transfers, cash advances and/or foreign transaction fees Fees include out-of-network overdraft and ATM fees, and fees for using your PIN during transactions

Overall, the right type of credit card will vary from consumer to consumer, but if you’re hoping to reach some of your biggest financial milestones like buying a vehicle, buying a home or borrow money to start a business, you will need a credit history to do so. It starts with showing lenders that you know how to use a credit card wisely. A few expenses you may want to charge to your card:

  • Appliances or electronics: Using a credit card for these purchases will allow you to spread out that large payment over time.
  • Rental cars or hotel accommodations: Typically, these merchants require a credit card to cover incidentals.
  • Online purchases: Since credit cards generally offer more protections than debit cards, you may want to consider using them as your primary form of payment for all online purchases.
  • Purchases made abroad: Credit cards are fairly widely accepted around the world. When you travel, make sure you have at least one credit card with you for all your purchases. It is also a safer alternative to carrying large amounts of cash. Do not forget to inform your credit card company that you will be abroad so that you do not encounter any obstacles once you arrive at your destination.

What should I consider when spending with a credit card?

Before you swipe your card at checkout, there are a few things you need to consider. Pay close attention to the fine print of your credit card terms, you’ll want to know your interest rate. This will determine how much it will cost you to carry a balance on your card. And your credit line will tell you how much credit you can spend. However, most experts recommend keeping your credit utilization ratio (how much you spend relative to the amount of credit still available) to no more than 30%.

The key to establishing and maintaining a good credit score is keeping your spending below that 30% threshold and making sure you only use your credit card to pay for purchases you know you can afford by now. the. your bill is due. Carrying over a balance from month to month can cost you dearly over time, and a late payment will likely affect your credit score.

The bottom line

Credit cards can be a useful financial tool. By adopting a few good habits when using your credit card, you can ensure that you are able to build a positive credit history for your long-term financial goals and give you a little more buying power. right now.

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