Build a healthy relationship with your credit card

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In my previous post Updates on my debt repayment journey, I talked about how I am working on repaying all my debts, including my fully-loaded credit card ($6,000). This time, I would like to share tips with you about managing your credit cards and your credit in general, and to help you build a healthy relationship with credit.

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Pay off your balance every month

I wish I had understood this concept earlier in life.

To my 18 years old self, a credit card was just an extension of my budget to buy whatever I want, the second I need it, and I didn’t care about paying off the balance immediately.

A credit card should be used to build your credit and for expenses you ALREADY have the money for. However, life is more complicated than this, so you could also use it for emergencies. We’ll address this below.

Just so we’re clear, I am not here to judge you, on the contrary. I want to help you better manage your finances and debt!

Building your credit

If you need to borrow money, whether it is for your studies, buying a house, or financing a larger project (like buying a car), financial institutions will take a look at your credit score.

If you pay for everything in cash, you won’t have credit. Even if you are not in debt, unfortunately, you won’t have a credit score. That sucks, I KNOW.

Your credit score is a method for financial institutions to check your profile when it comes to finances. Even if you have debts, if you repay them on time, you will have a good score. We could say it’s about trust. The higher your credit score is, the more trust financial institutions will have in your ability to pay them back,

Credit scores vary between 300 and 900. You should always aim to be over 700, which is between Fair and Good.

Learn more about credit scores and check yours with Borrowell here.

Your credit card limit

I have the same credit card as when I was a student. I opened my bank account when I was in university (long story short, we changed financial institutions because I didn’t like our previous one).

My limit was $3,000.

When I started dating my now fiancé, I figured I’d increase my limit to $6,000 because I needed to buy plane tickets to visit him, and plane tickets aren’t cheap.

Big mistake.

1. COVID hit us. The borders have been closed for over a year now.
2. Instead of using my card for plane tickets, I ordered tons of stuff on Amazon and food on UberEats. And I didn’t necessarily repay everything at the end of each month.

If you are on a debt repayment journey, delete UberEats and other food delivery apps from your phone! You’ll be less tempted to order food every day if you have to make an effort, and you’ll be able to stick to your budget.

Read these posts to get more tips about budgeting and meal planning.

Lower your credit card limit

Did you know that you can lower your credit card limit?

Financial institutions will often send you offers to raise your credit card limits. You might see this as an advantage but it can easily put you in trouble if you are not responsible.

If you can afford to repay your ENTIRE balance at the end of each month, go for it. If you can’t afford it, DON’T.

Call your credit card company

Most people don’t know you can lower your credit card limit to fit your financial situation.

Now, I’m not sure if your balance needs to be at $0 before lowering it. This is what I am aiming for.

Simply call your credit card company and be firm about your request to lower your credit card limit. Be a strong and independent adult!

Minimum payments

If you don’t pay your balance at the end of every month, you will be charged interest. You will also have a certain amount set for the minimum payment. It is usually a percentage of your balance.

The minimum payment amount doesn’t help you pay off your balance. It mostly pays off the interests. If you carry a larger balance, it could take you YEARS to pay off your credit card.

This amount will ensure you are not charged late fees and that your credit score won’t be negatively affected.

Make sure to pay more than the minimum amount each month to be able to pay it off entirely in a reasonable period of time.

Learn more about minimum credit card payments on RateHub.ca here.

Consider switching credit cards

Depending on your needs, you might be able to change your credit card to leverage the benefits. For instance, you might get cash back on your purchases, earn Miles towards plane tickets, etc.

If you are interested in credit cards with a cash back option, make sure to read the fine prints. Sometimes, the benefits don’t outweigh the downsides.

There are also credit cards with lower interest rates. If you are working on a debt repayment plan, you definitely should consider switching to a low-interest credit card.

Scotiabank offers a credit card with a lower interest rate than most cards (12.99% vs 19.99%). Learn more below.

Consider linking your bank account to PayPal

We’re in a pandemic. It is actually safer to buy stuff online, from groceries to home décor. And we have nothing else to do!

If you need to make purchases, use PayPal to pay.

PayPal allows you to link your bank account to your PayPal account. This way, every time you need to make a purchase, instead of going on your credit card, your purchase will be applied to your bank account.

Become self-aware of your spending habits

Since I’ve started doing that, I’ve become more conscious about my spending habits (purchases that I used to put on a credit card), so I am getting more responsible with my money. After all, if I make purchases from my checking account, I still need to ensure I have the money necessary to pay my bills.

Delete your credit card info from sites

If you are prone to making impulse purchases, remove your credit card info from sites where you can order online.

The fact that you will need to get up and find your wallet might you make rethink your need to spend money.

Budget your purchases

Sometimes, you might need to use your credit card for larger purchases, like if you are planning to renovate your house. You might not have the money right now, so you use your credit card to buy the materials.

You could also need your credit card for an emergency, like an unplanned trip to the vet for your pet who suddenly got sick.

Whether it is a situation that was planned or not, budget your purchases. Save an amount every month towards that purchase. Plan this amount in your budget.

Learn how to make a budget here.

Credit cards are not evil. They can be a useful resource to build your credit and help you in unexpected situations. As long as you pay off your balance as fast as possible, you should not feel ashamed to use your card.

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