Junior Economist
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Junior Economist

Why Credit Cards Will Help You Change Your Life

Disclaimer: We are not financial advisors and this is not financial advice. This is simply someone’s two cents on good practices with credit cards, and it’s perks. Please proceed with caution and follow the tips at your own risk. Please seek a financial advisor for more information!

Meet Billy. Billy is great with money and only buys what he needs and can afford. Billy also happens to be an extraordinarily smart university student that uses credit cards to better his life. He only buys the necessities and pays for it all on his credit card; he even pays it off in full before the end of the grace period, meaning he never pays interest. As a result, Billy has an extremely high credit score, and a low credit utilization rate — thus qualifying him for premium cards with high rewards and low interest. Furthermore, he’s smart about the way he handles credit cards and never falls into debt. As a result, Billy collects tons of rewards and bonuses in the process, of which he can use to fly to visit his family back in Europe at no cost, or he can go on quick week-long vacations without paying for flights or hotel stays. Be like Billy.

Credit cards invoke fear in a lot of people all around the world. Last year, in the US alone, household debt hit a record of $13.21 trillion. Luckily, that’s shared between the United States population of about 300 million people. Think! If you were about to write a check for that amount, it’d say $13,210,000,000.00!

Credit card companies and banks are charging huge amounts of interest on that debt, with average APR for interest (Average Percentage Rates) sitting at 16.91% in the United States.

People who aren’t smart with credit cards end up with large amounts of debt and huge loads on their backs. Examples include: not paying the balance off before the grace period is over, having a credit card balance that occurs interest, buying items that you can’t afford, and etc.

However, behind these closed doors of people misusing credit cards, you will find people who are on the inside being extremely smart about the way they handle these precious cards of opportunity.

These people always:

  1. Pay the balance off in full every month (before the grace period ends)
  2. Treat credit cards like cash and only buy things that they need and/or can afford with cash
  3. Make sure that they pay zero interest (By paying off the balance in full)
  4. Rack up a lot of reward points (for free flights, car rentals, and hotel stays) or cashback (1–10%) — for things that they already buy on a daily basis

All you need to do is follow the good practices so you can get all the benefits without getting hurt.

Now, maybe you’re still not convinced. Well, here are 8 more reasons why credit cards can help you!

It allows you to rank up reward points for things that you already buy

  • You (or your parents) are already paying for the basic necessities in life, like food, gas, insurance, your phone bill, and etc. You might as well get free reward points or cashback for what you are already buying. It’s free money!

Builds your credit (increases your credit score)

  • Having past history with credit cards, or any other types of credit can help you prove to institutions and banks that you are someone they can trust to lend money to. By paying off your balances in full, and keeping your credit utilization low, you can increase your credit score, thus proving that you are a low-risk lendee. This will most likely increase the chances that you’ll get lower interest rates for bigger loans in the future, like mortgages.

Gives you an opportunity to practice self-control

  • Credit cards are very dangerous but only if used incorrectly. Having a credit card with a low limit will allow you to develop and exercise your self-control. On top of that, you can even make a game out of spending as little money as possible, since you can track every penny on banking apps!

Free perks (depending on the card)

  • Many credit cards often have rewards attached to them for spending money. This comes in the form of cashback or reward points. Furthermore, on premium cards, you might have access to special deals, or perks, like free lounge access at airports when travelling or even roadside assistance when your car breaks down. The key thing to remember is to never ever spend more money than you would normally spend. It’s only a deal if you only get what you need.

Free extended warranty and buyer protection

  • In many cases, credit cards also bundle in free extended warranties for your purchases, and they will offer buyer protection if you don’t get what you paid for. This is an excellent safety blanket, just in case you happen to need to cross that bridge.

Fraud and Theft Protection

  • Cash is cash. When people steal your money that’s in the form of cash, you can’t really do anything about it. You’ll most likely never get it back. When people steal your debit card number and use it for unauthorized purchases, that’s usually just how it is. It will take a long time for banks or financial institutions to investigate and return the money to you, if at all. However, for credit cards, banks and institutions will ask you a few questions on a phone call, and just like that, you’ll usually have the money that was stolen, returned back to you. You don’t get that peace of mind with cash.
  • Furthermore, some banks allow you to instantly cancel your credit cards on your phone through their respective apps. This is great if you have a feeling that someone has stolen your card or you simply lost it.

Compatibility with budget tracking tools

  • Banks, other financial institutions, and large scale companies have gotten together and created many awesome budget, money tracking apps, and tools. These easily integrate with your credit card and can give you insights to where exactly your money is going. I guess you’ll finally find out how much money you’re spending per month on Starbucks, bubble tea, and Uber rides.

Considerable Real Emergency Fund

  • This has been placed as the last point, and for good reason. You should always have some funds saved up in a bank account for quick emergencies and rainy days. However, upon real emergencies, you have another safety blanket that you can fall back on until you can get up and handle the situation. It’s not the best, but it will cover your back when your friends and family turn you away, or when you have no other good options.
  • Try your best to take proactive measures so that you will never have to depend on your credit cards being your emergency fund.

While you’re on the journey to go and get as many credit cards as you can, remember this:

“With great power, comes great responsibility.” — Uncle Ben, Spider-Man

Written by Kevin Liu, Guest Writer for the Junior Economist and Web Developer at JEC Toronto

Originally published on November 27th, 2019

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The official blog of the Junior Economic Club of Toronto

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Kevin Liu

Kevin Liu

16-year-old TKS Innovator, and AI Enthusiast, working on developing a legendary skillset to solve the world’s most important problems

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