Credit cards have a tendency to get a bit of a bad wrap. Which, in many circumstance is fair enough. But, not always. Growing up when I was having difficulty with something (the printer is usually a good example) I would immediately blame the printer whereas both my parents would tell me it was a ‘user problem’ rather than a product problem. I feel like this is often the case when it comes to credit cards.
I’ve heard many stories of people applying for a credit card, spending thousands on ‘stuff’ and then being stuck with monthly interest resulting in taking several years to pay off the balance of the card.
I like credit cards for the frequent flyer points, the discounts, the cashback. I don’t buy things I don’t need or can’t afford immediately.
Here are some of my credit card tips for getting the best of both worlds:
- Go with a lower limit. Just because a bank is willing to give you a credit card with a limit of $15,000 does not mean you have to accept that. Go with a limit of $5,000 or $6000 (I always like to have enough of a balance for an emergency airfare home when travelling).
- Don’t spend for the sake of it. Just because you have a credit card limit of X amount doesn’t mean you have to spend to the limit. Just use it for normal bills and expenses.
- Choose a card that’s of some benefit to you. Whether it be a free flight or bonus points. Be sure to weigh up these benefits with the cost of the annual fee.
- Pay off the balance in full each month.
- When the ‘honeymoon’ period is over (e.g.: free or reduced annual fee) it’s time to cancel the card.
- If you don’t trust yourself with a credit card, don’t apply for one.
By paying off the balance of the card in full each month, it allows you to forego any interest payments yet still earn frequent flyer points and points. Essentially, having your cake and eating it too. But be sure never to miss a payment, and never spend beyond your means.
My credit cards have also allowed me to fly domestically for free, internationally business class using frequent flyer points and given me cashback on essential spending.
My car was recently due for a service and there was an offer with my credit card for $100 cashback on the service. It was something that was necessary anyway and I saved $100 in the process – which in my opinion is a significant saving. Especially when I was already going to spend the money.
How do you use credit cards to your financial benefit?