Credit cards are often made out to be a trigger for irresponsible spending. Conversely, they can also help consumers build smarter financial habits, encourage people to monitor spending, be more aware of shopping trends, and even frequently monitor statements for fraudulent transactions.

Whether you’re new to having a credit card, trying to clean up your debt, or just routinely managing your finances, these tips will help you manage your credit products wisely.

For many Canadians, managing one or more credit cards can be difficult. Debt adds up quickly with everyday spending, and if you aren’t tracking your budgets accordingly, you can rack up a hefty balance in no time. Being smart with tracking will promote financial awareness and maximize rewards in the credit card’s accelerated categories.

Luckily, financial institutions offer mobile apps and alerts to notify you of everyday purchases, fraud notifications, and even spending trends so you are more aware of your habits.

At a minimum, a good rule of thumb is to monitor your monthly statement and ask yourself which expenses are necessary and which expenses could be classified as discretionary.

By developing the habit of monitoring your account — and assessing your spending — you can strengthen your ability to prioritize your spending. This is a budgeting tool that goes a long way to making sure you have enough money to pay necessary bills, set aside for rainy days, before spending it on non-essential expenses. It's also foundational for learning the discipline of how to budget and save for significant expenses, like a vacation, home renovation, or retirement.

When it comes to payment, it’s best to pay the full balance every month. If you can’t, you should endeavor to pay more than the minimum, pay on time, and even set up automatic payments so you don’t miss any due dates. Late and overdue payments are major factors in the calculation of your credit scores — and credit scores dictate how expensive debt and loans will cost, and the availability of credit. The better your credit score, the more options you have and the cheaper borrowed funds will cost you.

There are a few best practices to maintain or build a good credit score, including the 15/3 rule. As a practice, the cardholder repays their bill in two rounds: the first payment is 15 days before the due date and the second payment is three days before the statement date.

According to credit experts, using the 15/3 rule can help you increase your credit score in a relatively short period of time. The theory is that the frequent, regular, and consistent payments signal to creditors your ability and capacity to use credit responsibly and reduces your credit utilization (how much you borrow from the available funds) and your debt-to-income ratio (how much you owe versus how much you earn). Read more on how to increase your credit score.

From a spending perspective, many experts suggest following the 50-30-20 rule, where 50% of your spending goes towards needs like bills and everyday expenses, while 30% can be used on things you want, and 20% is set aside for savings. Using your credit card statement and your overall budget, you can quickly determine if you're following this smart spending rule. If not, examine your spending and find ways to rebalance how you spend your money. Do this consistently and you'll find it easier to save for bigger goals while spending more strategically.

When it comes to maintaining your credit health, you'll want to be aware of the major factors that go into calculating your credit score. While credit scores can be complex algorithms, in general, the major factors include:

Consistent history of paying on time — Consistency is key
Your credit utilization ratio — This is the amount of credit used, compared to credit you have access to. Lower ratios are better
Average age of your credit products — Do you have long-standing credit relationships? Longer relationships are considered better
The variety of credit products you own — From credit cards to mortgages to car and student loans: variety is better
Number of recent hard inquiries on your credit file — How often a creditor has checked your credit history

While many responsible consumers often want to simplify their access to credit, there is a danger to closing and canceling credit cards and other forms of revolving credit. For instance, if you close a credit card you've held for decades, this can alter the average age of your credit products and can hurt your credit score. Another way to hurt your credit score is to consolidate high-interest debt on a lower-interest loan (for instance, a low-interest credit card). While this can be a great strategy for reducing the cost of debt and getting out of debt faster, it can be tempting to close all other credit cards and this can hurt your utilization ratio which can hurt your credit score.

For those who want to pay down their debt quickly it's best to consolidate higher-interest debts using a low-interest credit card. By dropping your annual credit card interest rate from 22.99% to 12.99%, you can save more than $900 in interest costs (assuming you carry a $5,000 credit card balance and it takes three years to repay the loan). Good options for low-interest credit cards include:

If you're looking to switch your credit card to take advantage of lower interest rates and debt consolidation, consider cards that offer annual interest rates between 12.99% and 13.99%, such as the RBC Visa Classic Low Rate card. With this card, you pay a low annual fee — around $20 per year — and get access to a rewards-rich card with a low-interest purchase rate. One of the key advantages is the purchase security and extended warranty insurance offered to cardholders. You can also save with additional merchant perks, such as more points and per litre savings at Petro Canada, complimentary DoorDash subscription, and higher reward earnings at Rexall pharmacies.

Other options from top Canadian banks include:

While interest rates on cash back cards will not be as low, these cards can help you find more room in your budget through cash back rewards on everyday purchases. Good options include:

Neo Mastercard: This no annual fee Mastercard offers a credit limit of up to $10,000 and cash back between 0.5% and 5%. Apply for the Neo Mastercard and receive instant approval plus learn to monitor your spending and maximize rewards through upgrades and perks only available to Neo customers.
Tangerine Money-Back Credit Card: This no annual fee cash back card is great for those building their credit with a minimum personal annual income threshold of just $12,000. Cardholders get top-rate Money-Back Rewards in two purchase categories of their choice (such as grocery, furniture, gas, etc.) and a third category if they open a Tangerine savings account.

When used responsibly, credit cards are a great way to build awareness of your financial health. It requires users to spend within their limits and monitor usage and trends, while free tools will allow you to ensure optimal product diversity, as well as a utilization ratio of your credit products to maximize your credit score.

Finally, you must frequently monitor monthly statements and credit reports to find any errors and flag them for investigation so your credit history is reflective of your spending habits.

Advos

Articles

Standard Fleet and UP.FIT Join Forces to Revolutionize Government EV Fleet Management

Nextech3D.ai Appoints Mady Wynsma as New Head of Global Sales

Crypto and AI Leaders to Convene at Lisbon's AI Lisbon 2024

Nonprofits Insurance Alliance Appoints Carlos Ballesteros as CFO and Treasurer

ALEX Acquires and Integrates Wrapped.com’s xBTC and xUSD into Bitcoin DeFi Ecosystem

University Compounding Pharmacy Rebrands as MediVera Compounding Pharmacy™ Amidst Significant Growth

AI Built for Sales

Cboe VP Highlights the Growing Importance of Defined Outcome ETFs

Understanding Margin Trading: Opportunities and Risks for Investors

$BRETT Memecoin Now Listed on Major South Korean Exchange Bithumb

QTCPcoin Foresees Blockchain as a Catalyst for Digital Economy Growth

Huma Completes Series D Funding, Launches Innovative Huma Cloud Platform

HR.com Announces Advisory Board for 2024 Future of Compensation and Total Rewards Study and Event

AI Built for Sales

VOESH New York Introduces Eco-Friendly Gua Sha Cleansing and Shampoo Bars

Strategies for Responsible Credit Card Use to Enhance Financial Health

Truck1 Showcases Ultra-Luxury RVs for Elite Travelers

Jamee Carey Launches Gijaru Workgear to Empower Indigenous Workforce

Benchmark International Facilitates Acquisition of Computer Systems Integrators by Acture Solutions

Investment Opportunities in Prominent Precious Metals Mining Companies

AI Built for Sales

BTCC Partners with CoinsDo to Enhance Cryptocurrency Services

HTX Celebrates 11th Anniversary with "Battle of Glory" Event for KOLs, Offering 200,000 USDT in Prizes

Taiwan Set to Host ABS2024, Featuring Joseph Gordon-Levitt and Global Tech Leaders