How to Use Credit Cards More Effectively

Used correctly credit cards can provide convenience and an opportunity to access funds quickly and relatively cheaply. Whilst it may be hard for some of us to believe, a well-managed credit card can be cheap. Conversely, credit cards used incorrectly can be one of the worst forms of credit available. A guaranteed way to use a credit card incorrectly is to have a high credit limit and to max out your cards, which can result in you paying 20% interest to service your cards each month. However through correct management, credit cards can be used effectively.


Get a low interest credit card

Although for those in debt it is best not to have a credit card at all, they can be a useful convenience. If you feel that you need a credit card you should seek the lowest interest rate possible. Before applying for a credit card you should find the best deal possible, with literally hundreds of credit cards available in the marketplace at the moment you should be able to find a deal suitable to your needs. Some people have credit cards that charge over 20% in interest, however with careful investigation you could find several cards available now that have an interest rate of around 10%. It could be possible for you to literally halve your potential interest burden.

Pay off your balance each month

The most effective way to cheaply manage your credit cards is to pay off the balance each month. Most credit cards offer 30 to 45 days interest free. By paying your balance in that time you can avoid accruing interest. When you start failing to pay your balance on time this is when you start accumulating interest and begin to lose control of your debts. Continually using your card and failing to pay the balance on time is how you can easily get into financial trouble, regardless of how low your interest rate.


When using credit cards that have a 45 day interest free period make sure that you understand the implications of this interest free period. This 45-day interest free period generally implies that the overall interest is higher. If you fail to pay off the balance within this period of time it is likely that you will be stung by the interest.

Avoid charge cards

Charge cards can be great if you are someone who manages their money effectively. Charge cards force you to pay off your full balance each month and doing so means you never pay any interest. However failing to pay off the balance is when charge cards become most dangerous to your financial position. When failing to pay the balance you can become liable for interest, penalty interest, late penalties and many other costs. With charge cards, if you think that it is possible that you might miss the repayments it is probably best to avoid them altogether.

Forget about reward points

Generally reward points are just an attempt to draw you into using certain credit cards and ultimately they have very little value.


You often have to pay an annual fee to subscribe to a reward scheme. This fee can often equate to an entire month’s interest. Ultimately this is like having to pay 13 months worth of interest per year. Rather than reduce your debt, rewards programs add to it the very thing you are seeking to avoid. Reward points are also not very good value for money. With some programs it is possible that you have to spend up to $20,000 per year on your card just to recoup the costs of the annual fee.



Following these steps should help you manage your credit cards better. But ultimately credit cards are one of the biggest contributors to Canada’s rising personal debt levels and if you do not think you can manage your cards properly perhaps you should avoid them altogether.