For some, credit cards can be a debt trap and cause for concern. But if you are smart and sensible about how you use a credit card, it can be a great tool that offers many benefits.
A line of credit can serve as an emergency fund. However, this type of credit is not available to everyone. If you lack such credit, a credit card can help you out. But be careful: the interest rate on the unpaid balance of a credit card is higher than the rate on a line of credit.
Without a credit card, it is virtually impossible to book a flight or make a purchase online. Although you can make payments through platforms like PayPal by linking them to your bank account, this payment method is not accepted everywhere. What’s more, not having a credit card linked to your PayPal account will limit the transactions you can make.
If your credit card gives you points, travel discounts and other advantages, using it can be beneficial. However, you need to use it a fair amount before you can reap the benefits. You also need to avoid carrying an unpaid balance, since the interest charges can quickly cancel out the card’s advantages. To benefit from your card without going into unnecessary debt, you can deposit a lump sum on the card and then use it for all your purchases.
Managing your finances can quickly get complicated. A credit card can make this task simpler. By paying for all your purchases with a credit card, through preauthorized payments for instance, you only need to make one payment per month.
Keeping track of your spending is the only way to manage it effectively. Unfortunately, purchases are easy to forget. By using a credit card for all your purchases, the monthly statement becomes a valuable tool for understanding where your money goes. In addition, statements often list the type of purchases made, which you can use to easily calculate your total spending in different categories.
When it comes to lending you money, financial institutions and other lenders consult your credit file to assess your ability to repay the loan. They therefore rely on your credit score. The better your score, the easier it will be for you to borrow, and at better rates. When starting out in life, we don’t have a credit file or a credit score. A credit card is an excellent means to build up your score and show your reliability. If you have a credit card and use it responsibly, you are laying the foundation for a good credit rating.
There are both good and bad ways to use credit cards. As Samya Namir, an Advisor – Transactional Services and Small Business at the National Bank branch located on the corner of Saint-Hubert and Beaubien, in Montreal, points out “you should never repay one card with another. It doesn’t make sense to replace a debt that costs you 18% by another that costs 29%!” Ms. Namir further advises that “sometimes it is better to get a loan rather than use a credit card. And if you have trouble managing your compulsive spending, leave your credit card at home.”
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