Smart Ways to Use Your Credit Card

Smart Ways to Use Your Credit Card

Joseph Darby
Six smart ways to financially benefit from credit cards

Most of us have been raised to think nearly all debt is bad, and to avoid it at all costs. We’ve all seen “financial gurus” dramatically chopping up credit cards with scissors. Cutting up a credit card is certainly a smart step in many cases – especially for those who’ve racked up thousands in debt, are struggling to get out of it, and who may be inclined to repeat the cycle of getting into bad debt all over again.

But credit cards can be a great source of rewards and additional benefits, if used in a responsible way.

Before we explore the smart ways to get the most from credit cards, let’s look at the drawbacks.

Credit Card Drawbacks

Most of us think of credit cards as 'bad' which is largely due to the interest charged if you don't pay them off in the interest-free period. Interest rates can top 30% each year, and come with several other drawbacks:

  • Credit cards require self-discipline to repay within any interest free period. If you’re not disciplined, then credit cards are not for you!
  • As touched-on above, the interest rates are high and can quickly compound and get out of control. This means that if you’re lacking financial responsibility, have unexpected cashflow issues, or need to fund the unexpected on a credit card, you can easily run into trouble by not being able to pay off your credit card balance in full and on time. Anyone not paying their balance off regularly might quickly be paying a huge amount of interest each month, which takes most people a long time to repay. In this case, paying with cash or an EFTPOS/debit card is probably a much better idea for you.
  • Fees, including transaction fees charged by merchants each time you use the card and annual fees charged by the bank or credit card provider.
  • The combined total available limit on all your credit cards is considered debt by lenders. So, if you’re applying for a home loan from a bank and you have two credit cards, each with a limit (line of credit) of $10,000, the bank will consider that you’re already $20,000 in debt – even if you’ve never used the total limit available to you, and even if you currently owe nothing on the cards. This accounts for the fact that you can use that line of credit if you choose to, so the bank will reduce the total amount you can borrow for a mortgage accordingly.
  • The habitual use of credit cards, or consumer credit of any kind, might start to lead to poor financial habits. Perhaps a young adult starts to constantly borrow to fund their lifestyle, including by credit card purchases. Soon, they may find themselves in a bad habit of constantly spending money they don’t have, a form a lifestyle creep.

If anything above sounds off-putting to you, then take scissors to your credit card and stop reading now.

For the remainder of you that know you can use your credit card in a healthy and disciplined way, there are ways to make the most of the benefits on offer and avoid the pitfalls explained above. Let’s explore the top ways your credit card can become a great financial ally.

1. Reward Points or Cash Back

In most cases, rewards and cash back are the main reason why paying with plastic beats paying by cash. Many card rewards work on point systems where you earn a dedicated number of points for each dollar spent, while others offer cash back to a percentage value of the total spend.

The array of reward benefits on offer are almost endless, and the key is to find a card that best fits your individual spending patterns, for example:

  • Air points or miles may suit those who travel often by air.
  • Co-branded cards with petrol stations may suit those who travel often by car.
  • Cash back can suit nearly everyone.

2. Sign up Bonuses Sweeten the Credit Card Deal

Financial institutions know competition for your wallet is fierce, so they entice new customers with sign-up bonuses. These bonuses can be a big win for you, essentially rewarding you with free money or travel perks simply for opening a new card.

Sign-up bonuses come in an array of offerings; you might find:


Get a lump sum of cash deposited into your account after meeting a spending requirement within a set timeframe (e.g., $200 cashback after spending $1,000 in the first three months).

Note: not to be confused with a credit card balance transfer.

Air Points or Miles

For frequent travellers, credit cards that offer air points or miles as a sign-up bonus can be incredibly valuable. These points can be redeemed for flights, upgrades, or other travel-related expenses, significantly reducing the cost of travel.

Reward Points

Reward points are another common sign-up bonus, providing cardholders with points that can be redeemed for a variety of goods and services. These points can often be used for shopping, dining, entertainment, and more. The versatility of reward points makes them an appealing option for those who want to maximize the value of their spending in areas that matter most to them.

Fine Print

It's important to remember there are usually some conditions attached to any sign-up bonus. Be sure to factor in any annual fees or interest rates before applying. So long as you pay your balance in full each month, the bonus can outweigh any fees, making it a smart way to maximise your rewards.

3. Credit Building

No credit history? Don't get shut out! A credit card, used right, can be your key to financial opportunities. Here's the deal: on-time payments on your card build a positive credit history, the golden ticket lenders look for.

This history shows you're a responsible borrower, worthy of trust. The result? Lenders such as banks are likely to look at you as a better candidate for borrowing down the road, like for a mortgage on a first home! But remember, responsibility is key. Start with a low limit card, track your spending like a hawk, and pay your balance in full each month. By playing it smart, you can turn your credit card into a powerful tool for unlocking your financial future.

4. Interest-Free Period

Most credit cards now offer an interest-free period of 30-60 days on all purchases. Alternatively, if you pay with an EFTPOS or debit card, cash, or online banking, your money is gone instantly.

When you make a credit card purchase, your money remains in your regular bank account until a few weeks later when you pay your credit card bill. This enables you to benefit from the time value of money, as your funds could be sitting in a savings account earning interest before your credit card payment is due. Additionally, the tiniest amount of inflation will also take hold between you making a purchase and your payment’s due date – saving you even more.

5. Credit Card Protections

One of the biggest advantages of using a credit card is one most little-know about.

This is the enhanced security credit cards offer against fraudulent or substandard transactions. Credit and debit cards are used throughout the world via international networks like Visa and MasterCard. This means they’re trusted by customers in different countries, who know their purchases are protected by their own card issuer or bank. This protection is best illustrated in two different ways:

Fraud Protection of Credit Cards

Unlike EFTPOS or debit cards where stolen funds are immediately deducted from your account, credit cards provide a layer of separation. With a credit card, you're not paying directly from your own pocket, but rather borrowing money from the issuer to make the purchase. This means if your card falls into the wrong hands, the stolen funds aren't coming straight out of your bank account.

Let's say you make a purchase at a store and unfortunately, your card details are skimmed. With a debit card, the thief could instantly drain your account balance. With a credit card, however, the fraudulent transaction shows up on your monthly statement. This gives you time to report the suspicious activity to your credit card company. They will typically investigate the claim and reverse any unauthorised charges. In most cases, so long as you report the fraud in a timely manner, you won't be held liable for fraudulent purchases, offering valuable peace of mind when shopping, especially online.

Remember: It's still crucial to be vigilant and practice safe spending habits to minimise the risk of fraud. But when it comes to unexpected theft, credit cards offer a safety net that debit cards simply can't match.

Other Protections of Credit Cards

International provisions related to the credit card networks allows credit card users to dispute transactions in other cases too. This could be if goods are purchased online:

  • Which are damaged during shipping, or
  • You receive the wrong items, or
  • Your goods are not delivered at all.

If you compare this to items purchased with a debit card, then the charge cannot be reversed unless the merchant is willing to do so. What’s more, debit card theft victims do not get their refund until an investigation has been completed.

The credit cardholder, on the other hand, is not responsible for the disputed charges; the amount is usually deducted immediately and restored only if the dispute is withdrawn or settled in the merchant’s favour. You’ll still need to report the issue in a timely fashion and provide enough information so your credit card provider can make a decision.

6. Insurance

Don't underestimate the power of your credit card! Beyond the advantages listed above, many cards offer valuable insurance and purchase protection benefits that can save you money and hassle down the road. Rental car insurance, for example, can be a significant expense when booking a trip. But if you use your credit card to pay for the rental, you might already be covered for damage or theft depending on your card's policy. Travel insurance is another perk – trip cancellations, lost luggage, or even medical emergencies abroad can be financially devastating. Certain credit cards offer complimentary travel insurance, providing peace of mind and potentially saving you hundreds of dollars. And beyond travel, some cards extend warranties on your purchases, often surpassing the manufacturer's original timeframe. This means your favourite big-ticket purchases could be covered for an extra year or more, just for swiping your plastic instead of paying with cash or with a debit card.

If you familiarise yourself with your card's complimentary insurances and protections, you can turn your everyday spending into a safety net for unexpected situations.

The Bottom Line: Credit Card Benefits

Ditch the wallet fear and embrace the smart swipe! Credit cards, used responsibly, can become financial superheroes. From racking up rewards to built-in insurance, they can transform your spending into a strategic game with serious perks. So, don't just pay – play the credit card game to your advantage, and unlock a world of financial benefits. 

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