For many years, I used my credit cards for all the expensive things I really wanted but I knew I couldn’t afford. Clothes, gifts for others, things for my home, holidays and more all went on my credit cards at one point or another. I was well aware that by using my credit card, I would be getting myself into debt because I had no way of actually paying them off anytime soon.
It sounds crazy that I knowingly got myself into debt like this, but honestly, I thought that it was acceptable to use credit cards in this way because there would always be another day later when I had more money (somehow) to sort things out and pay them off. I naively thought that everyone used their credit cards the same way – as a means to affording things that were outside of their means.
Now though of course, I’ve learned the hard way that debt isn’t good and should be avoided at all costs – even if it means not having those nice things that are out of financial reach. For a long time after my experience with credit cards, I felt like I needed to avoid them like the plague.
It’s taken me a while to warm to the idea of using credit again, but I know now that if used correctly and sensibly, there are actually financial benefits to be had from doing so!
How a credit card can help your finances
1. Increased credit rating
Using one or two credit cards, not taking out too many new applications, controlling your spending and above all, making payments in full or at least on time will all help your credit rating to increase.
This is useful for people who are trying to get credit for the first time or those with bad credit and who may be currently limited to only those deals that are subject to high interest rates. By managing credit well for 6 months or so, your overall credit rating will improve and you’ll end up having access to better credit card offers in the future.
2. Borrowing at no cost
It really is possible to use a credit card without getting into debt! This can be done by simply paying off the balance in full at the end of every month. So if you need to take advantage of something on special offer but you won’t have the cash to pay for it until next week, you can take advantage of a revolving credit facility through the use of a credit card. As long as you pay the balance in full each month, you won’t be charged interest and you’ll have borrowed for nothing.
3. Protection against purchases
Many credit cards offer protection against purchases, unlike when you use cash or debit cards. For example, if the company you bought something from goes bust and you can’t contact them to get a refund on your goods, the lender is obligated to provide compensation.
Providing you intend to pay back the full balance of your credit card each month, it does make sense to pay for purchases using credit in order to get this protection. Note – make sure to check that your lender offers this before applying for a new card.
4. Payback through rewards
The best thing about using credit cards is that you can end up getting paid for doing so, through rewards, cashback, air miles or points that you can exchange for goods. Credit cards can actually have the opposite effect of getting you into debt – you could earn £100s per year instead! Always shop around to make sure you’re getting a credit card with a reward to suit you.
5. Convenience
There’s no doubt that using a credit card is definitely more convenient than having to go to an ATM and use cash. Certain places, for example some hotels or hire car companies, require that you use a credit card when paying a deposit and won’t allow you to use cash. So in this instance, credit cards can prove very useful.
6. Expenditure tracking
If you use a credit card for all your purchases, it makes tracking expensives easy. Rather than having to trawl through your bank statement looking for purchases, you’ll have them all in one place on your credit card statement. This should help you to identify areas where you’re overspending or could save.
7. Save money when travelling
There are some specialist credit cards you can use which ensure you get the most for your money when spending abroad. In some cases, it’s actually cheaper to spend on a specialist travel credit card when you’re abroad rather then getting cash changed here in the UK before you go. Deals change all the time, so always shop around!
8. Financial safety net for emergencies
It is better to have a pot of cash in the bank for financial emergencies. However, it’s always handy to know you’ve got a credit card as back up just in case a financial emergency crops up and you don’t have the cash in the bank to pay for it.
It’s the improper use of credit cards that equals debt
I always assumed that credit cards = debt, but this isn’t the case. It’s bad financial decisions that cause debt! Credit cards are simply a facility of credit that should be used responsibly. The fact that you can opt to pay back the line of credit at a later date is purely an option – and in my opinion, not one to be taken up!
How do you use credit cards to your advantage?
*This is a collaborative post.
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13 Comments
I really love the rewards that goes along with credit cards. I’m earning around $500 ever 2 months and it’s super easy!
Michelle recently posted…The 6 Steps To Take To Invest Your First Dollar – Yes, It’s Really This Easy!
Ooh what credit card are you using for those rewards Michelle? I suspect I won’t be able to get it here in the UK but my US or Canada readers may benefit! 🙂
Its convenience is what I am after aside from the reward and credit rating. And, I no longer have to list down my expenses. What I will do is to wait for the bill to verify each expenses.
Jayson @ Monster Piggy Bank recently posted…Thoughts on Borrowing Money to Invest
I agree – if you buy all your purchases on credit (and pay them off at the end of the month), this is a great way to keep purchase records in one place so you can track expenses!
I love the convenience of credit cards. After getting into $60K (gulp) in debt and paying them off via a home equity loan about six months ago, we use them and pay them off every month.The rewards are a nice benefit, but I try not let myself focus on them too much, lest it become a dangerous, slippery slope (again). I do track all of our expenses and as you pointed out, credit cards make it a lot easier to do so.
I use to hate credit cards and avoid them at all cost. Now that I have learned how to utilize them with some common sense….I can’t imagine life with out them. Realize when I say them I’m only referring to a total of two cards. Anymore than that might give me heartburn….just saying.
Petrish @ Debt Free Martini recently posted…Role Call, Petrish…HERE!!!
Hi Hayley!
I love credit cards for their rewards! Just under 6 months ago I signed up for American Express Gold card. I have received a welcome bonus of 20 000 points in the first three months of using it plus the points I have accumulated in the months of using the card which converted to £125 in total. I have added a bit to this money and bought a brand new iPad which was on sale at the time! All in all, it only cost me £84 as opposed to it’s full retail price of £239! 🙂
Like you point out, when used correctly credit cards can be very beneficial!
Eva @ Girl Counting Pennies recently posted…Life After Debt
I use credit cards for most all my purchases, but of course I pay them in full each month. I take advantage of cash bonuses and cashback rewards. And as you mentioned, it’s convenient and helps me keep my transactions organized. There are definitely a lot of advantages if you use them properly. Some cards also offer special discounts on retailers or events and that can be another way to save.
Gary @ Super Saving Tips recently posted…Divorce: Minimizing the Financial Impact
Though I’ve never had a credit card, I can really appreciate how it can be beneficial especially with cash-flow. As my fiancee is coming up to last month of the debt snowball (can’t believe its here) for entirely credit card debt I see how his mentality towards money and more pertinently credit cards have changed and its because of that, that we will be getting a credit card (with a small limit) when we set up our joint account.
Rebecca Elizabeth recently posted…3 financial lessons for college students
These tips are all great! Love using 0% cards as interest-free loans. Of course, you have to be disciplined about it.
Penny @ She Picks Up Pennies recently posted…Simple Switches: Four Reasons to Make the Bed Together
I have a fist full of them that I’ve applied for when offered a discount at the point of sale. I don’t use them–I prefer to use my bankcard–but if the store is offering a sale to cardholders that day, they’ll usually accept my “I left it at home” excuse and let me charge without the card in my possession. Since I pay the bills online I don’t even have to pay for the stamp.
RAnn recently posted…Long Term Care for a Special Needs Child
I really love the rewards I get with my card, but I am actually thinking about cancelling my credit card. Only because I don’t get paid in USD and my credit card is in USD so I am losing money on the exchange rate.
Sylvia @Professional Girl recently posted…How I Threw a Birthday Party for a Five year old Without Breaking the Bank
I definitely love the rewards on my card and use it all the time. I think I’m lucky that the vast majority of debt I’ve been in was not credit card related – since the interest rates are just ridiculous. I’ve always been pretty neurotic about paying off my card on time.
Mel recently posted…Financially Savvy Saturdays #104