Credit card or penalty card? Avoiding plastic pitfalls.

Credit cards are practical and in many cases a necessity (especially when booking online). While building a credit history is a good thing, careless spending and irresponsible use can quickly land you deep in debt. The key is to get in the habit of using your credit card wisely and paying it off regularly to avoid throwing money down the drain.

To stay on top of the game, here are some field rules to follow when choosing a card:

  • Compare credit cards at all the major banks and ask for student rates. Scope out the best student credit cards of 2014 here: http://www.moneysense.ca/debt/credit-cards/canadas-best-credit-cards-of-2014
  • Choose a credit card that has no annual fee, a low interest rate and a rewards program.
  • Always read the fine print and steer clear of offers that are too good to be true.
  • Check to see if your card offers free extras like purchase protection or rental car insurance.
  • Rewards programs should be realistic with regular, easily attainable rewards like movie tickets or cashback. Programs that require you to spend beyond your means to redeem flights or holidays are not ideal for students.
  • Apply for just one credit card. Spreading out your balance across multiple cards makes it hard to keep track of finances and spending can easily spin out of control.

Avoid the pitfalls once you have your credit card:

  • Start with a lower credit limit to curb your spending.
  • Make payments on time, and either pay the full balance or aim for more than just the minimum.
  • Defaulting on credit card payments will incur late fees and interest (increasing your debt).
  • Avoid paying interest by only making purchases you know you can pay off at the end of the month.
  • Do not take out cash advances. Immediate cash may help you in an emergency, but there is no grace period and cash advances usually incur a significant interest rate – much higher than your regular interest rate.
  • Monitor your statements to ensure purchases are correct. This is also a great way to see where your money is going.
  • Though banks offer some forms of fraud protection, take precautions when buying online, keep your pin private, don’t let the card out of your sight when at restaurants or bars, and report lost or stolen cards immediately.

Remember, a credit card is not free money. It does have to be paid off and getting in the habit of doing so regularly will help you stay on target with your spending, and out of the penalty box.

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