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When should (and shouldn’t) use a credit card to make purchases?


When should (and shouldn’t) use a credit card to make purchases?

When should (and shouldn’t) use a credit card to make purchases?

While most personal finance gurus, and even common sense will tell you not to use credit cards, with their outrageous 25% interest rate followed by extra fees, for discerning users they are not only a boon, but also help to achieve financial and savings goals.

As competition among credit card issuers intensifies, perks, rewards and bonuses are getting more outrageous. In this article, we’ll cover when and where you should use your credit lines, and when you must avoid them like the plague.

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When should a credit card be used?

These are some meaningful usage scenarios based on the terms, benefits, and benefits available on your card.

1. Buying in bulk

With purchase protection becoming more common in credit cards, it makes perfect sense to put expensive home appliances or electronics on your card. You can get damages or fraud coverage for free, and you can save on extended warranties and insurance.

2. Travel

Most consumer finance experts agree that using a credit card to book hotels and flights offers a lot of added value, especially when using co-branded airline mileage cards.

It’s not just discounts and travel protection, many cards offer free upgrades, cancellation insurance, luggage protection, and more.

3. Improve your credit

For young people with no credit history, using a credit card responsibly is a great way to get started. Credit card issuers constantly report your activity to the credit bureaus, and even with a secured credit card, you must pre-deposit funds, which is a great way to build your credit application rating.

There are some best practices for making the most of this strategy, including obvious ones like paying your bills on time, but beyond that, experts recommend not using up more than 50% of your credit limit. These are strong indicators of responsible credit users.

4. Offshore Sourcing

Considering the often cumbersome and expensive hurdles when transferring money abroad or converting funds into foreign currency, a credit card may just be the most convenient way to go.

In fact, credit cards offer much cheaper exchange rates than banks or currency exchange services, saving up to 6%.

When should a credit card not be used?

Make sure to avoid the following credit card use cases to avoid overcharging and ruining your credit file.

1. Investing, trading and gambling

There was a time when this was just sound judgment, but in recent years it seems like millions of people have tried using credit cards to fund their stocks, cryptocurrencies and betting accounts.

This has nothing to do with your investment performance or speculative activities, but rather the additional fees involved.

Since credit cards treat such fees as cash advances, users will face a one-time levy of 3% to 5%, plus the risks involved in processing such transactions, as well as additional transaction fees.

2. Advance payments and balance transfers

While it may seem tempting to put a down payment on your credit card for a car, mortgage, or any other large purchase, the sheer interest rate alone can limit you.

This can again lead to cash advances, resulting in exorbitant fees, and anyone who chooses this option certainly doesn’t have the cash to pay off their balance quickly, which means it’s often the first step toward the dreaded debt trap that many credit card users find themselves exist.

Although not explicitly stated, many believe that putting such spending on a credit card is often a slippery slope for an individual’s credit score. After all, this in no way reflects sound financial judgment.

final judgment

If someone tells you to stay away from credit cards, they don’t know what they’re talking about. In fact, efficient and prudent use of credit remains one of the cornerstones of successful personal financial management.

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