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By Hyder Owainati, RateHub.ca
Special to the Financial Independence Hub
Whether your financial resolution for 2019 is to dial back your spending, build up savings or better manage your debts, odds are your credit card – and how you use it – crossed your mind a few times as you were formulating your money goals for the new year. And while knee-jerk thinking leads many of us to jump to the conclusion that credit cards can only hurt our budgeting goals, it’s not necessarily the case.
Below are some key ways credit cards can help you reach your 2019 money resolutions (not hurt them).
Use your credit card to put your spending habits under the microscope
One of the many benefits of a credit card is that all your past purchases can be easily tracked either on paper statements or on your card issuer’s app (in the case of the latter, you can often sort purchases by category). By investing some time into looking at how you spent your money last year, you can get a big picture view of your worst purchasing habits and take action to avoid repeating the same mistakes.
For example, if you find that you’re paying subscription fees for services you rarely take advantage of, it’s time to cancel them and start adopting a more strategic approach to what you sign up for. If your daily latte purchases add up to an exorbitant amount of money every month, you may want to start brewing coffee at home. And if your holiday and birthday purchases led you to carry a large balance from one month to the next, you may want to rethink your expensive gift-giving habits.
Maximize your rewards with a credit card that aligns with your spending habits
By using a credit card that offers bonus rewards on the purchases you make the most often, you can rack up some significant savings. On the other hand, if you carry a card that doesn’t align with your spending habits, you could be needlessly leaving money on the table.
Do you spend big on gas? Then you’ll want to consider a card that offers bonus rewards at the pump (some of the best gas credit cards in Canada offer as much as 4% in cash back). Are you among the many Canadians who eat out at restaurants more than twice a week? With a rewards credit card catered for dining out, you can earn as much as 5% in travel points for every dollar you spend at restaurants (we’ve calculated that can add up to $180 in points over the course of a year; all on just restaurants).
To find the best credit card in Canada for you, it’s best to compare your option across multiple financial institutions and not confine your choices to a single bank.
Use a balance transfer to tackle your past credit card debts
If you’ve racked up significant credit card debt over the past year and your goal for 2019 is to eliminate your interest payments once and for all, a balance transfer credit card can go a long way in helping you chip away at your debts faster.
These cards include offers that let you pay anywhere from just 0% to 1.99% on your outstanding balances from your other cards (instead of the typical annual interest rate of 19.99%). We’ve calculated that on a $3,000 credit card debt paid back in six months, using the right balance transfer card could mean the difference between $30 and $177 in interest payments. The gap can grow exponentially depending on how much debt you owe.
Save money by tapping your credit card’s side perks
Creating a more cost-effective budget isn’t only achieved by slashing your spending, but also by taking full advantage of the discounts and benefits that are available to you. Many credit cards offer perks that are not so obvious at first but can make a considerable difference to your wallet.
For example, a number of cards offer free roadside assistance memberships, which will not only save you money during emergencies when you’re stranded in your car, but also means you can avoid (or stop) spending money on separate programs. Other cards include price protections that will reimburse you if an item you recently purchased dropped in price, which in some instances can help you capitalize on discounts after the fact.
In a perk that often goes unused, many rewards cards provide access to loyalty program e-stores that offer the opportunity to rack up bonus rewards on purchases from a slew of major retailers (such as Amazon) that you would otherwise miss out on if you purchased from them directly.
If saving up for a trip is one of your new year’s resolutions, then you’ll truly see how credit card side perks can help you save, as many cards offer everything from travel medical insurance to discounts on hotel and vacation packages, and more. When it comes to your credit card insurance perks, it’s always recommended that you read up on exactly what your card offers to ensure you’re not paying out of pocket for coverage that’s already provided to you through you card. Paying extra to be over insured is far from a cost-effective budgeting strategy.
Take note of potential loyalty program changes
If you get points on your credit card instead of cash back, you are (albeit in an indirect way) invested in your card’s loyalty program. After all, the points you earn carry value and can be redeemed for everything from flights and hotel rooms, or depending on the program, groceries and gas.
Therefore, it’s a smart move to keep up to date on any upcoming changes to your loyalty program (such as mergers or acquisitions) that can impact the value and flexibility of your points. If you stay in the know, you’ll be prepared for changes and can make a more informed decision on whether you should stick with your current loyalty program or change to another. Above all else, you won’t be caught in a situation where it’s too late to make a choice and potentially be faced with the realization that the points you accrued may get devalued.
Important closing note
As always, it’s important to highlight that while credit cards can help you achieve your 2019 resolutions, paying off your credit card balance and avoiding interest payments is the key to ensuring your card works to your benefit. So, always use your card strategically only for purchases that you know you can pay off by next month’s billing cycle and make it a priority to track your spending.
Hyder Owainati is a Content Marketing Specialist at Ratehub.ca, a website that compares credit cards in Canada as well as mortgage rates, high-interest savings accounts, chequing accounts, and insurance with the goal to empower Canadians to search smarter and save money.
