When NOT to use your credit card

A credit card is indeed an irreplaceable means of payment in today’s economy. Consumers and businesses have been relying on this system for its convenience, especially with the recent popularisation of cashless transactions in person and online. In fact, the Central Bank of Ireland reports that total card spending for July of 2021 equated to €7.2 billion, showing a 10% annual increase when compared to July 2020.

While credit cards are very useful for financial ease and success, they could also be detrimental to it. This is because they make it easy to rack up debt and overwhelm you with high-interest charges. With cards becoming more accessible, consumers need to learn how to shop smart and manage their credit well. Here, we’re listing down situations you should choose not to use your credit card.

When you still have unpaid debt

It’s always better to assess your current credit situation before swiping your plastic. Pay existing credit balances before you charge something else because you don’t want your debts to pile up. Always make it a point to pull out your credit card statements, tally your balances, and arrange to pay your balances first. The Irish Times highlights several options that the Bank of Ireland offers to help repay balances, such as the ability to pay off more than the monthly minimum requirement, making once-off payments where possible, and switching to a personal loan with a lower interest rate. Keeping your debts in check ensures that you won’t get stuck in a cycle of debt that can be difficult, lengthy, and expensive to get out of.

When you don't know how much credit you still have

Learning about credit utilisation can help consumers understand and manage their credit expenditures. Petal Card clarifies that the higher the percentage of credit you’ve used in relation to your available credit, the lower your credit score will be. Putting this into numbers, if you have €6,000 in credit card debt and €20,000 available to use, your utilisation rate is 30%. A lower credit utilisation rate means that your cards aren’t maxed out and that you’re managing your credit well, while a higher credit utilisation rate signifies the opposite.

In our article on ‘So, You Have Bad Credit — What Now?’, we highlight that some of the consequences of having a high utilisation rate may lead you to score a bad reputation to your future lenders. This means that landlords may refuse to lease you a flat, employers may choose other candidates over you, or utility companies may increase your initial deposit for opening accounts. These only emphasise the importance of maintaining a good credit score.

When you're only doing it for reward points

While credit cards are good for building your credit history and earning reward points, be vigilant about spending for the sake of points. Some bills, mortgages, or rental fees apply a 2% to 3% processing fee that can negate any rewards you might be looking to earn. In cases like these, it’s best to utilise a check or debit card instead, so you can avoid potential debts piling up.

When you're emotionally charged

This one’s a no-brainer, but constantly reminding yourself to refrain from doing this won’t hurt. Forbes explains the link between emotion and money — greed, envy, over-excitement, and unhappiness are all emotions that can drive you towards retail therapy. Overspending is a temporary fix that will lead to bigger problems in the long run. Thankfully, there are now systems in place to help you control your expenditure. For instance, over-the-limit protection lets you set a charge limit: if you push your card over, your transaction will be declined.

If you’ve been guilty of using your card during any of these scenarios, you’re not alone. But it’s important to nip these bad habits in the bud so you can manage your credit and your finances better.