Credit Cards - To Use Them or Not

Ah, the debate among financial experts around the world. Should you use credit cards, or cut them up, never to be swiped again? This question is probably as old as credit cards, which by the way, I find quite interesting. If you are curious to learn more CLICK HERE to read up on some details. In my opinion, the answer is not cut and dry. Like most financial questions, there is not an across the board answer that I can give you. But I can give you some direction if you should choose to include credit card spending as part of your regular financial habits.

Credit Cards - on the plus side.

Credit cards can be great tools to help minimize your financial risk. If your card is compromised and used by someone else, the credit card companies have procedures in place so you are not responsible for the charges. We have had this happen several times and have always been credited back the money for the charges. Quite often credit card companies will not allow any charges to go through if they look suspicious. If it is you trying to make the purchase, it can be a pain in the ass, but if it isn’t you, it makes your life a lot easier.

They can also be a tool to help you earn rewards, such as cashback, travel rewards or other points and perks. If managed well, this can be a nice benefit each year.

Credit cards - on the other hand.

They can get you into heaps of debt. That heap of debt can cause you a huge amount of stress AND interest. With credit card companies charging some crazy high interest rates, it can become difficult to get out from under looming debt. Here in Canada, the credit card companies now have to include details on how long it will take to pay off your card if you only make minimum payments. That information can be shocking.

Studies show that using credit cards increases your spending by up to 100% vs. spending in cash! Mind blowing, right? Why? Cash in your pocket is a limited resource, you only have so much to spend and then it’s gone. So, if you are out gift shopping for a friend, and you have $50 and no backup, you are going to have to be very intentional. You will crunch the numbers before heading to the register. A plan to spend $50 with plastic in your pocket, you know you can spend $60 or $100 without anything stopping you.

What does this all mean?

It means that I only recommend using credit cards IF you have clear systems in place to manage your money as a whole. If you know credit cards are a path to debt for you, stop carrying them in your wallet. An indicator that credit cards are not for you is if you are currently carrying a balance on one or more cards. Instead, stick to your debit card, or cash. Pay attention to how your spending decisions change with no credit cards in your wallet.

If you do decide that credit cards are part of your bigger financial picture, here are a few tips to help you stay out of trouble (and debt).

Don’t put anything on your card if you don’t already have the money in your account to pay it off.

Don’t wait for the arrival of the bill to make a payment. Pay your cards off regularly, at least twice a month. This will make it easier for you to see if you are spending more than you have in your plan.

Include the items that you want to use a credit card for in your plan. Break it down based on the frequency you will pay your card off. So, if you will be paying it off weekly, look at your budget items that you will use your cards for, (groceries and gas are a few common ones) and come up with the amount you budget to spend each week. If your goal is $200 and it’s time to pay it off for the week, but you have $250 on there, that is pretty quick feedback that you are off plan. Checking on the balance before making a purchase will help you stay on track!

If you use your card for regular recurring transactions, like monthly insurance or subscriptions, automate the payments too. Netflix payment being added to your card on the 10th of the month? Automate a bill payment to your card for the same day.

It’s really about being a customer that the credit card companies don’t make any money off of. Get the rewards, never pay interest and stay on track with your budget by paying attention to your credit card use!

-Sherry