Media Room | Financial News | Investors Group

Credit cards – the right way

With banks, credit unions, retail stores and grocery stores offering attractive credit card options, obtaining a credit card today is simpler than ever. When used the right way, credit cards can be an effective way to build and improve your credit score, making it easier to obtain financing for future large purchases (for example, a vehicle or your first home).

On the other hand, they can be your financial downfall if you don’t use them wisely. If you can manage spending and use your credit card responsibly, there can be a number of advantages; just be sure to follow these simple suggestions:

  • Select a card that meets your needs based on your income and spending habits.
  • Charge only what you can pay back at the end of the month.
  • Make sure you understand the features and benefits of your card. Some cards eliminate the need for separate purchase or travel protection, such as trip cancellation and interruption insurance or extended warranty protection.
  • Many credit cards offer some kind of rewards program, giving you back about one percent of every dollar spent in the form of cash, points, travel reward miles, merchandise or even investments. Although it’s not recommended to use credit cards just to earn rewards, when you use a rewards card wisely, you get features and value you don’t get with cash or debit cards.

Despite the advantages of a credit card, take caution. Using a credit card may not be right for you if:

  • You can't pay your credit card balance in full and on time. If this tends to happen to you, stick with cash to avoid additional fees.
  • You tend to spend more than you can afford or make impulse purchases. If your monthly balance is growing, analyze your expenses and cash flow and create a plan to begin to pay down the balance. Consider using cash or debit to limit your spending.
  • You apply for more cards than you really need. Each time you apply for a credit card, reporting agencies record that action; applying for too much credit can damage your credit rating, as it can appear that you are relying too heavily on credit.
  • You make cash advances on your cards. Remember, you are charged interest from the day you take the advance until the day you pay it off, making it even more costly.

When used correctly, credit cards can be useful financial tools. But it’s important to remember that there are many other tools and strategies that can help you achieve all your financial objectives. Start filling your financial tool kit by talking to a professional advisor today.

August 31, 2015

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.