Seven tips for properly using your credit card

According to the latest information from Equifax, credit card expenses are on the rise as inflation continues to soar. The first signs of difficulties appear more often in young consumers aged 25 to 34¹. This is therefore the perfect opportunity to remind you of credit card risks if you’re not using it wisely. These tips will help you take advantage of all its benefits and make it your ally rather than your worst enemy!

1. Understand the basic terms

First, you need to understand how a credit card works. This convenient financial tool allows you to get a cash advance. You have a due date to pay back your loans. If you don’t, or only make the minimum payment, you’ll have to pay interest, which is often high (between 19 and 29% depending on the card). The first rule, therefore, is to pay off your balance in full by the due date, otherwise you will quickly fall into debt.

2. Limit your card use to 35%

You also have a credit limit on your card, which is the maximum amount you can spend. It’s important to monitor your card balance so that it does not exceed this limit. In general, it is recommended that you keep your credit utilization rate below 35%. For example, if your credit card limit is $1,000, don’t spend more than $350 in total. Be aware that if you don’t follow the terms of your credit card, it can hurt your credit rating and have a negative impact on your interest rates.

3. Establish a credit history

By adopting good credit card habits (such as paying off the entire amount borrowed each month), you will gradually build a good credit history and a good credit rating. This can help you borrow from financial institutions, especially if you want to buy a house or a car. Your credit rating tells the lender how risky it is to lend you money. The higher your rating, the more confident they are.

4. Respect your budget

The best thing you can do to use your credit card properly is to make a budget. This will let you know how much you can spend each month without hurting your wallet. Then, keep track of your spending on a regular basis to monitor how much money is coming in and going out. Refer to your online statement. Online statements reflect the type of spending you do, so you know how much you’re spending in total by category so you can adjust if necessary.

5. Get a card that allows you to monitor your spending by category 

Many cards allow you to accumulate points that earn cash back. It can therefore be interesting to pay for your everyday expenses such as groceries, gas or outings with your card. Choose a card that includes a phone application that allows you to track your spending by category. Most of the time, you will be able to set alerts that will notify you when a certain spending limit is reached. This way you can avoid overspending.

6. Request a limit that corresponds to your needs

To stay out of debt, you must live within your means. Don’t be tempted by a credit limit that might tempt you to spend too much. Instead, choose a limit that reflects your spending habits. For example, if you plan to use your credit card occasionally, a limit of a few thousand dollars should be sufficient. However, if you plan to pay for almost all your expenses with your card, ask for a higher credit limit to keep your credit utilization rate below the recommended 35%. If you’re the type of person who occasionally forgets to pay your balance or only pays the minimum amount, you should choose a lower limit to minimize your monthly fees.

7. Select a card adapted to your financial situation

There is a great variety of credit cards available. Our advice is simple: choose the one that suits your needs and financial situation. Ask about annual fees, interest rates, rewards, insurance, etc. You need to be sure you can pay off your balance at the end of the month. Keep in mind that a credit card is a loan that must be managed responsibly to avoid overindebtedness.

Whatever your choice, avoid signing up for credit cards offered by businesses in exchange for a discount or promotion. They usually have much higher interest rates than those offered by financial institutions. And finally, stick to one credit card, especially if you are in the process of paying off your debts.

In short, when used properly, a credit card can help you build or rebuild your credit rating. It can also allow you to take advantage of loyalty programs and rewards that will help you save money.  So, it’s worth learning how to use it properly, starting with your first card.

Do you have trouble staying within your budget and managing your expenses? Are you in debt? Don’t hesitate to contact one of our financial recovery counsellors.

1. Source : Globenewswire.com – Credit Card Spending Ramps Up as Inflation Soars  (globenewswire.com)