When people discuss their budget and savings, they typically talk about their income, expenses, and goals. Credit cards rarely get brought up in the same conversation (or when they do – are often seen as a liability). The issue is, many of us think of our credit cards strictly as a tool for spending, but in reality, they can help our budget in a variety of ways when used responsibly and strategically.
The main way credit cards help you with your budget is the rewards you can earn with your spending. Cash back credit cards, for example, earn you a set percentage back on your purchases that over the course of a year can amount to hundreds of dollars. But a card’s side perks can also make a significant difference to your savings too if you plan accordingly.
For example, credit card rental car insurance could easily save you $20-50 every time you rent a car, as it’s included for free with many credit cards. Some credit cards also offer free roadside assistance which could save you $80-$150 each year compared to if you were to buy this coverage on your own.
Since many credit cards are linked to loyalty programs, you can actually earn even more rewards on your everyday spending by taking advantage of special offers. Aeroplan is a good example as they have an e-store where you can earn extra miles when making purchases online. As long as you have one of the official co-branded Aeroplan credit cards, you can earn additional miles on every dollar from purchases from retailers like Indigo, Dell, and Amazon. More points means potentially greater savings on your next flight ticket.
When you use your credit cards responsibly, your credit score will also improve which could save you money down the line. Let’s say you need a loan for a car or a mortgage in the future, your credit score is one of the factors lenders look at to help determine if your credit worthy. A high credit score could mean you’ll get a lower interest rate on your loan which could save you a lot of money over the long term.
Even if you’ve made mistakes in the past and currently have a poor credit score, you can apply for a credit card made for people with bad credit, such as a secured credit card. With secured credit cards, you have to put a deposit on your card, but as you make payments on time, your credit score will go up.
Earning rewards is great, but you need to remember to always pay off your balance in full and on time every month. No rewards are worth it if you’re going into debt for them.
To help you keep your spending in check, you could treat your credit card like a debit card by only spending what you can afford to pay off. The tricky thing here is that credit cards aren’t like cash, so you won’t see money leaving your account. Therefore, it’s important to keep track of your spending (luckily most credit cards are accompanied by apps that make it easy). If you’re worried that you may overspend, you could also just pay off your current balance weekly to keep yourself on budget.
Credit cards can also help you save without you having to spend any money thanks to the additional perks that they may provide. There’s no need to purchase travel insurance or an extended warranty if your credit card already includes it. Another common benefit is purchase assurance which protects your purchases from loss, theft, and damage for 90 days.
Regardless of which credit card you have, it’s important to read up on what additional benefits you have and what are the conditions for them to apply. For example, you may be required to charge all of your trip expenses to your credit card for your extended travel insurance to be valid.
Since every credit card has different perks, it’s important to include them as part of your financial discussions. A couple who loves to travel would be best served with a travel credit card. They could also consider adding an authorized user so they can pool their points.
If you do decide to add an authorized user, keep in mind that the authorized user does not build a credit history with that credit card.
Finally, credit cards (and debt) need to be part of any financial discussion. The last thing you want is to surprise your partner with some debt that you’ve been hiding. Obviously, debt is not something you’re proud of, but it should be brought up so you can decide together how to move forward.
Credit cards are a part of our daily lives and when used responsibly, they can save us a lot. By including them in our budgets and financial discussions, we can be better with our money.
YOUR FREE FINANCIAL PLAN
Are you ready to invest in your future?
Build your free plan today.
Start now
Planning for retirement is a vital endeavor that requires careful consideration and strategic financial management. While ideally, retirement savings should begin early in one's career, life circumstances often lead individuals to start their retirement planning journey later in life.
Both HSA and FSA accounts offer tax advantages on medical expenses, but which account is best? We've got a breakdown to help you decide.
Now that retirement is on the horizon you'll have to decide what to do with your time. here's a list of 42 inexpensive hobbies to try!