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Credit card usage tips: how to use credit responsibly

Posted on 15 November 2021

Written by Ashvin Sharma

Everyone knows how incredibly easy it is to swipe a credit card when you are out shopping, or even by automatically entering your payment details while browsing online. Credit cards have a whole host of benefits – delayed payments, financing options, rewards, and points collection, to name just a few. It is important to respect credit card usage, however, and to stay diligent when using them as it can be easy to fall into credit card debt. Although many credit card companies offer special incentives to entice people to sign up for new cards with low or 0% APRs, these deals can be deceiving and many people fall victim to changes in terms and loopholes. In this article, we share some important credit card usage tips to ensure you gain the benefits of using credit cards while keeping your money safe and remaining wary of the dangers they can bring.

Prioritize paying off your credit cards

The first step of respectful credit card usage is paying off your credit cards. Above all else, this should be the top priority when it comes to using your credit card. You should be sure to pay your credit card bill in full each month, and on time. Resorting to just paying the minimum payment will mean you quickly accrue interest, credit card debt, and even a negative impact on your credit report. You should not be racking up credit card bills you cannot afford, so be sure to stick within your means. It makes sense to set up automatic payment on your credit card so that you can pay it off without even thinking about it. It is particularly important to pay off your balance before the introductory period of your credit card ends, as this can mean a significant jump in interest rate. If you have multiple credit card balances to pay, be sure to pay off your most expensive balance first to eliminate high interest.

Avoid applying for a credit card you will not likely be approved for

It is easy to be tempted by new promotional offers or favourable interest rates that are often advertised for new credit cards. In fact, many of these rewards or deals are intended for those with good credit and high incomes, and those who will use their credit cards frequently. We all have a good idea of our financial situation, and the products we will likely or will not be accepted for. If you are not sure, it is a good idea to check your credit score via either TransUnion or Equifax to see how you are performing. If you have doubts about being accepted for a new credit card, the best thing to do is to not apply. This is particularly relevant for premium credit cards. If you apply and are declined, this can have a negative impact on your credit score, so you should stick only to credit cards you are confident you will be accepted for.

Be wary of low interest rates and APRs

Many credit card companies advertise low or 0% APRs and low interest rates to get you to open a credit card account. This can be appealing – if you have a balance on your credit card, you won’t have to worry about high charges, right? Unfortunately, this is not always the case. Usually, low or 0% APRs only apply to balances that are transferred. Any new purchase made using the card will have a higher APR. APRs and interest rates can increase if you make a late payment or if you go over your credit limit. If you get caught in any of these circumstances, your interest rate could increase drastically and you could receive a higher credit card bill than you expected. One of our top credit card usage tips is to read the fine print on any promotion involving low interest rates or low APRs. Paying your credit card balance off completely each month is the best way to avoid any interest fees and you will not have to worry about an APR at all.

Avoid foreign transaction fees

When travelling abroad, using credit cards is a great way to avoid carrying large amounts of cash. However, credit card usage often comes with foreign transaction fees – a charge from the credit card company when you make a purchase in a foreign currency. Your credit card company does not have to notify you of these as the terms are stated in your contract. They are usually around 3% of the total transaction cost, so they can add up quickly and be a nasty surprise on your statement when you return home. For this reason, it is important to confirm your credit card company’s policies before you travel so that you know the best way to use your credit card abroad. Some credit card companies offer lower transaction fees or only charge them if you pay in local currency. Others do not charge any foreign transaction fees at all. Our credit card usage tip is to ensure you are prepared for extra fees when you return from your trip.

Carefully review your credit card statements

A good credit card usage tip is to review each of your credit card statements on a weekly basis. This is particularly important if you have an automatic payment set up for your credit cards and you do not need to consider manually making the payment. Paying special attention to your credit card statements will allow you to check each of your payments, in case of any anomalies like unauthorized credit card charges. It will also help you to assess your spending. Are you sticking to your credit card budget? If you need support in restricting your spending, check out our guide to creating a budget. Another advantage of reviewing your credit card statements is to look for any payments that you may be able to cancel, including any unwanted subscriptions.

Watch out for promotions

Credit card companies will often run promotions, throwing in perks or waived fees to entice you to sign up. These advertised promotions, however, are not going to last forever. The banks and lenders running the promotions will likely just want to encourage you to sign up or transfer a balance to the new credit card. They will probably last around a couple of months, no matter what the original benefit, before reverting to regular terms and conditions. The worrying thing is that the credit card companies are not required to notify you when the promotional period comes to an end. It may be advertised when you sign up, but in most cases, it will be included in your contract for you to discover yourself. This means that during your credit card usage, your interest rates and other fees could increase without you noticing, creating a higher balance than you anticipated. This can make your balance difficult to manage and can lead to credit card debt.

Do not exceed your credit limit

Although most credit card lenders and financial institutions will apply limits on your credit card usage, it is often possible to exceed them and spend more than the limit that is in place. Should you, as the cardholder, spend over this limit, you can be charged an over limit fee, and your credit card interest rate can be increased as a result. Equally, it is best practice to not use more than 30% of your credit line. If you do, your credit score will likely take a hit. If you are getting close to this line, ask your lender for a credit line increase or opt for another credit card instead.

Do not use the cash advance

If you happen to use your credit card’s cash advance, it is an extremely expensive way of getting to the credit you have on your credit card. In most circumstances, there is a minimum fee for a cash advance of around $7.50, or 1%, whichever fee is greater. There is also no grace period for a cash advance, so you will be charged interest as soon as you decide to withdraw it from your credit card. Cash advances themselves have interest rates as high as nearly 25%, making it an unaffordable way to gain funds. Cash advances can also send signals to your credit company that you may be struggling financially, and it can therefore have a negative impact on your credit score also.

Familiarize yourself with your credit card’s fine print

Reading the fine print is a crucial step in taking out a credit card. The Canadian government has recently ensured that any agreements for credit cards – including the information box – is easily digestible for consumers to understand the terms and conditions. Before taking out any credit card, you should read carefully through this fine print to ensure you understand exactly which responsibilities you are taking on with your credit card. Every credit card lender will have slightly different rules and rates, as well as triggers for fees, so it is important you know before spending. If there are limitations or high fees for any areas of your credit card usage, it is worth contesting it with your lender as they may waive some fees to keep you as a customer.

If you need further advice on credit card usage or credit card debt and how to clear it, book a free consultation with Spergel. Our reputable Licensed Insolvency Trustees have been helping Canadians gain debt relief for over thirty years. No matter what your financial situation, we can work with you to review it and find the best debt relief solution for you and your needs.

Ashvin Sharma

Ashvin Sharma

Ashvin Sharma is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) overseeing all of Spergel's offices in the Greater Vancouver Area and British Columbia. He is also our resident expert on homeownership debt and health debt. In his spare time, Ashvin loves to play sports, spend time with family and friends, and serves as a volunteer coordinator for "Free-Them", a Canadian organization committed to raising awareness about human trafficking.

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