Credit cards have benefits and drawbacks and knowing them is the key to staying away from debt and making better money choices. While drawbacks include high interest rates and card debt, there are also multiple benefits such as earning cash back and rewards points, easier budgeting, and more.
Drawbacks
Getting in Debt
Some people view credit cards as free money which can be dangerous, especially when combined with overspending and making frivolous purchases. Borrowing large amounts without repaying them can easily land you in serious debt. This, on the other hand, will ruin your score and make it more difficult to borrow in the future.
High Interest Rates
Some cards carry high interest rates and not paying the balance in full can be a recipe for financial disaster. You will incur a lot of debt if you tend to spend more than what you can afford to pay. Some store cards also have high rates of over 30 percent and low limits and are best to be avoided.
Benefits
Using Secured Credit Cards to Rebuild Credit
Secured credit cards help people with tarnished scores to rebuild credit and access a wide array of borrowing tools with beneficial terms. Cards such as the Refresh Financial Secure Visa Credit Card, for example, feature easy approval regardless of your credit score and affordable interest rates to rebuild your history. This is provided that you spend responsibly and pay off the full balance.
Being Able to Rent a Car/Hotel
Another benefit for cardholders is that they can rent a car or book hotel accommodation. Some cards allow users to earn points that can be redeemed for hotel stays and room upgrades. It is also easier to rent a car or book a hotel with a credit card because having one shows that a bank or another entity has already trusted you with credit.
Car Insurance
Using a card that comes with rental car insurance means that you don’t have to buy additional coverage. This means that you save money and time as you don’t have to deal with insurers and check their policies and terms. Some cards go with rental car collision loss/damage insurance, one example being Scotiabank Platinum American Express. Users are automatically insured in case of car theft or damage. Cardholders are covered up to the cost of the rental, except for cars over $65,000.
Travel Insurance
Some cards also feature travel perks such as travel insurance for flight cancellations and delays and hotel expenses. Issuers offer different types of policies such as emergency medical transportation, travel accident protection, change fee coverage, and trip cancellation. Scotiabank Platinum American Express, for example, offers comprehensive travel coverage, including travel accident, delayed and lost baggage, trip cancellation, hotel/motel burglary, and more.
Earn Rewards Points
Many Canadian banks run rewards programs that allow users to collect points and redeem points for purchases, events and concerts, flights, and statement credit. Rewards points can also be redeemed for food and drinks, hotel stays, trips, and subscription services. Canadian banks also offer cards with flexible redemption options, for example, the Scotiabank Rewards® Visa Card. Users are offered two options – points plus pay or points only. Rewards points can be redeemed for travel, merchandise, prepaid cards, and gift cards. Users also enjoy exclusive benefits such as cruise shore excursions, cruise upgrades, shipboard credit, hotel and vacation package discounts, and car rental discounts.
Earn Cashback
There are also cards that allow users to earn cash back on purchases, including groceries, dining and entertainment, gas, and more. Many cashback cards feature added benefits such as welcome bonuses, low introductory interest rates, no annual fee, and no spending caps. The Scotia Momentum® Visa Infinite Card and Tangerine Money-Back Credit Card are two options to earn money back. The Scotia Momentum® Visa Infinite Card offers 4 percent back for every dollar spent on subscription purchases, recurring payments, and groceries, including supermarket purchases, gym memberships, utility bills, and insurance premiums.
Subscription services include things like lifestyle boxes, meal kit delivery, and music and video streaming.*Limited time offer – Earn 10% cash back on all purchases for the first 3 months (up to $2,000 in total purchases). Plus, no annual fee in the first year, including on supplementary cards. A welcome offer value of $350*. Offer ends April 30, 2020.
The Tangerine Money-Back Credit Card offers 2 percent back on purchases in multiple categories, including parking and public transportation, entertainment, home improvement, and drug store purchases. Users also earn money back on gas, hotel and motel stays, dining, furniture, and grocery purchases. Cardholders benefit from perks such as no annual fee, no limits, and automatic earning.
Budget Easier
Some credit cards also offer breakdown of spending by category which makes budgeting easier. It is easy to track and monitor spending by category, including restaurants, gas stations, and supermarkets. Other categories may not be included, for example, pending transactions, cash advances, balance transfers, and returns. Some issuers also offer advanced features such as the option to browse by merchant category, amount, date, and merchant name. There are spending trackers that enable users to access their credit and debit accounts and choose from different spend categories such as education, dining, donations, cash, business, etc. Users can check their account balance, pending balance, and available funds, set savings goals, and make secure payments.
Start a Business with a Credit Card
Starting a business with a credit card is also an option because many issuers offer cards with high limits. The money can be used to cover startup costs and operating expenses such as salaries, insurance, office supplies and equipment, rent, and taxes. Using a business credit card is also a good way to build business credit and benefit from better terms in the future. The type of card to choose depends on the business that you plan to start and the expenses you are likely to incur. If gas money is your biggest expense, for example, then you may check business cards that offer cash back for gas purchases.
Some cards offer both cash back and insurance perks, for example, the Scotia Momentum® for Business VISA. Scotiabank also features discounts on business purchases, a long grace period of 25 days, and supplementary cards. Businesses are offered comprehensive insurance coverage, including rental car collision loss damage and travel emergency medical insurance.
Have Low Conversion Fees between USD/CAD
This is yet another benefit for cardholders who frequently travel or make purchases in US dollars. Many cards charge foreign transaction fees of 2.5 – 3 percent for purchases made outside of Canada. Some cards, however, feature no US dollar foreign currency conversion fees to help save money on purchases in US dollars.
U.S.Dollar Credit Cards in Canada
As said, these cards help avoid conversion fees and come with added perks such as cash back, rewards points, and insurance coverage. The Scotiabank ® U.S. Dollar VISA Card is one option in Canada, featuring additional benefits such as instant cash advances, free supplementary cards, and car rental discounts.
Low Interest Credit Cards for Longer Term Borrowing
Low interest credit cards help save on interest charges and are a good choice for users who find it difficult to pay off the balance in full. Low interest cards can be used for everyday purchases such as car rentals, travel, event tickets, electronics, phone bill payments, online purchases, and others. They can also be used for large purchases that have to be spread out as the interest charges will be lower than that of standard cards.
Credit Cards for Students
Many Canadian issuers also offer cards to students who usually have limited or no credit exposure. In addition to the chance to establish good credit, there are incentives such as money back, rewards points, and no annual fee. The Scotiabank Scene® Visa Card is one option for students who wish to earn rewards points and have no annual fee. Cardholders earn points for purchases at Cineplex.com and Cineplex theatres and for regular purchases. There are added benefits such as free supplementary cards, car rental and restaurant discounts, and credit card protection. 
Using Credit Cards Smart
To save on interest charges, it is important to pay the balance in full each month. In some cases, as with large purchases, it is not possible to pay off the balance but it is a good idea to keep it as low as possible. Carrying a balance of over 30 percent is not only costly but may affect your credit score. If you borrow long term, then it is best to use a low interest credit card to save on interest charges that add up. This is also a way to keep debt from piling up. Lastly, borrowing on a credit card makes sense when you plan to start a new business or another productive venture that will earn profits and help repay your debt.
Using a credit card smart is also making you more financially disciplined. On the other hand, carrying large balances means that you spend more than you can afford. This is a red flag for financial institutions and may affect your credit score, especially if your credit utilization is high.
