Credit cards are a very convenient credit instrument, especially when it comes to financing discretionary expenses, that is, those that are outside the regular budget. But beware: using credit cards to finance unforeseen expenses has some disadvantages that you should know so that you can take full advantage of this alternative without worrying about your balance statement next month.
The following article covers some important details about the benefits and risks of its use, along with some tips that can help you get the most out of this financial instrument to help you build your credit. Take note!
Benefits and Risks of Using Credit Cards
Although some prefer to save enough to cover discretionary expenses, such as a vacation, many others are inclined to use their credit cards. The important thing to note is that, like many financial strategies, using credit cards has its benefits and risks. Here are some of them.
- The waiting time associated with saving the money necessary to cover those discretionary expenses is reduced.
- Some credit cards generate extra benefits such as points and rewards from loyalty programs. If they are occupied to pay, for example, a vacation, they offer access to VIP areas at certain airports or the accumulation of miles you can later exchange for airplane tickets.
- You can make payments in foreign currency or e-commerce with them.
- If the budget is not properly controlled, the possibility of overspending is more tempting, especially if the credit limit is high.
- If you are dealing with travel expenses, the international transaction cost and the applicable exchange rate can make purchases more expensive.
- Overdrawing a card and not being able to pay it on time will affect your credit history.
Get the Most Out of Your Credit Cards
If you’ve already decided to use your credit cards to fund a discretionary expense, here are some tips to ensure your next balance statement doesn’t give you a headache.
Tip # 1 – Establish a family budget
Talk with your spouse, in the first instance, and later with the rest of the people who live with you, so that you all can reach an agreement regarding the expenses of the house.
One recommendation is to set maximum limits for the cost of meals and itemize household expenses. Write it down on paper and make sure everyone knows this budget so you don’t forget how much and what you can spend on.
Tip # 2 – Use your card as a tool to monitor your budget
If possible, have a single card dedicated to discretionary expenses that may arise, but with a low credit limit. Thus, you can take advantage of offers.
Tip # 3 – Pay the expenses charged to your card before the payment date
Make your credit card payments on time so that you don’t accumulate debts that will affect your credit history. If you don’t have such a good memory, set alerts and reminders on your cell phone so you don’t forget to do the payments.
Using your credit cards to pay your discretionary expenses can be a good alternative as long as you take into account the advantages and disadvantages related to this instrument. Taking them into account, you won’t have to worry about the next statement of your credit cards.