To use or not to use a credit card. That is the question.
Some experts recommend making nearly all of your purchases on a credit card. Others say to use a credit card only for needs and not wants.
Every scenario has a common thread, though:
“However you choose to use a credit card, it’s important to understand the true cost of your purchase and how it will affect your budget if you’re unable to pay off the balance in full each month to avoid interest charges,” said Lee Anne Brockelman, Director of Operations Support at SELCO.
When used responsibly, a credit card can be a useful tool for helping reach your financial goals. Here are examples of ways to put a credit card to good use, as well as instances when using a different form of payment (or avoiding a purchase altogether) is the better option.
When to use a credit card
Credit cards are considered a secure payment option because they employ encryption, fraud monitoring, and liability protections. They can also be ideal for certain expenses and goals. Here are a few situations in which using a credit card can pay off.
- For large purchases. Planning a big trip or home remodel? Need new appliances? If you can pay off the balance before accruing interest, using a credit card can be a sound choice. To buy more time to pay off the balance, consider a 0% introductory APR card.
- To help build your credit score. Using a well-planned budget, you can use a credit card to put gas in your car, get groceries, and pay all of your monthly bills. Be sure to make your credit card payments on time (and, ideally, in full.) Even small purchases paid off in time can establish good credit.
- For unexpected expenses. If emergencies such as medical bills, car maintenance, or home repairs come up, a credit card can serve as a temporary loan (and an interest-free loan at that, as long as you pay off the balance before the next payment cycle).
- When shopping online. Most credit cards, like the SELCO Platinum Visa®, have built-in fraud protection, making them safer to use online. Many websites also prefer credit cards to reduce the risk of fraud and chargebacks.
- Reimbursements for work-related purchases. If you regularly get reimbursed for business expenses paid for out of pocket, a credit card can be a great way to manage it all. You may also get a little back through travel points/miles or cash.
When not to use a credit card
Credit cards are so convenient, it’s easy to lean on them too often. Sometimes a debit card or cash make more sense. Other times, it’s best just to leave everything in your wallet. Here are a few scenarios in which using a credit card should be avoided.
- If you’re carrying a balance. Many credit-card holders fall into this trap. If you’re only able to make the minimum payment (or slightly more) each month, piling purchases onto your existing balance will compound interest, making it more difficult to bring your balance back to zero.
- For withdrawing cash. Using a credit card to take out cash is considered an advance and interest begins accruing right away. Whereas, withdrawing cash with a debit card is free at many ATMs, as is adding a cash amount to your purchase at a grocery store or other retailer.
- When you’re applying for a mortgage or other loan. There’s no need to completely stop using your credit card when applying for a loan. Conservative usage, however, is important during the early days of the process. Avoid expensive purchases and pay the balance off quickly before a lender performs a credit check.
- If you’re in it just for the rewards. Getting cash back and earning rewards when making purchases are nice perks. But be on the lookout for companies that talk a big rewards game but then charge hefty processing fees. Those charges can end up negating any rewards you might earn.
- For impulse splurges. Thanks to social media algorithms and subliminal (and not-so-subliminal) TV advertising, temptations to buy things you don’t need are everywhere. Take a step back and decide if making that impulse buy will break your budget.
There’s a time and place for using a credit card. Knowing when to reach for the plastic can go a long way toward achieving your financial dreams.
