Fun vs. Function: When to Use (and NOT Use) Your Credit Card for Purchases

Credit cards can be a great tool to help you achieve your financial goals. When used correctly, they can help you save, budget and even make money.

That being said, they can also be intimidating.

We've all heard horror stories about credit cards, interest rates and debt. It's enough to scare some people away from credit cards forever.

We're here to dispel some of that fear and help you navigate the best uses for your credit cards. We'll lay out when you should use credit for purchases and when you're better off using cash or debit.

When to use a credit card

Let's start with the basics: Credit cards offer convenience, security, rewards and can help you build a solid credit score that will assist you in acquiring loans for big purchases, like a new car or a house.

Like everything good, though, credit card usage is best in moderation. Not every purchase should be charged to a credit card—but we'll get to that shortly. For now, here's a look at a variety of purchases well-suited for credit:

1. When you're traveling

   Credit cards are a great tool for those who travel often. Hotels and rental cars often require a credit card to hold your reservation, for example. And if you're traveling internationally, some credit cards won't charge exchange rate fees.

    

   Furthermore, travel rewards are among the most popular offered by credit companies. If you already have a travel credit card, make sure you’re getting the most benefit from the options. If you're still shopping for a card, find one that rewards your current travel habits.

    

2. When you're unsure about security

    

   Modern shopping can add some security risk, particularly in the digital realm. If an unauthorized purchase is made on your card, report it to the credit card issuer immediately to get the charge refunded to your account.

    

3. If you've got good self-control and a solid calendar habit

   If you pride yourself on resisting temptation and can keep track of important dates, making regular purchases on a credit card can be highly beneficial.

    

   Whether it's the occasional shopping trip, your monthly phone or utility bill or your past few fill-ups at the gas station, when you pay off your balance monthly, your credit score could get a quick boost. Keep track of when your balance is due each month and pay it off a day or two early or set if for auto pay, just to be safe.

When not to use a credit card

After reading about all those opportunities, you're probably assuming you should just use your credit card for everything, right? A poorly-managed credit card, however, can end up costing you more money than it saves. So, there may be times when it’s best to put the credit card back in your wallet and pay with cash or debit:

1. When you don't have a plan to pay the balance

   A credit card can help with emergency expenses in a pinch but, if you don't have the funds to pay off a purchase, it's best to wait until you can afford it. Maintaining a balance on your credit card will result in costly interest charges.

    

   If you need a little help figuring out what you can and can't afford, keep a monthly budget. Understanding your finances leads to more informed spending.

    

2. When you're trying to pay off debt

   Paying off debt is always the right thing to do—and the last thing you need is temptation distracting you from your goals. While you're making payments, stash your credit cards in a drawer and refrain from using them, even for the smallest purchases.

    

   Stay inspired by planning out how you’ll use them once you hit that zero balance. Use a payoff calculator to determine your timeline to pay off your credit card balance. Doing so will help you achieve your goals without falling back into debt.

    

3. When you're nearing your credit card limit

   If you're approaching your credit card limit, it's in your best interest to stop spending until you get your balance paid down. Carrying a high balance can dramatically lower your credit score and, if you're looking to take out a loan, it doesn't look great to lenders. Plus, you could rack up some nasty fees if you go over your limit.

    

   If you need to make a purchase and are close to your limit, ask your credit card company to raise your limit or pay with another method.

Even after taking all of this into consideration, you still might be asking, “Is it ok to not use a credit card?”

Of course, it is! Talk to your financial institution about signing up for a rewards debit card. You'll still be able to earn points, but you'll be spending money directly from your checking account and won't have to worry about paying anyone back.

The idea is to spend responsibly while saving yourself a little bit more money in your day-to-day life. Using these tips, you should feel confident in how you use your cash, debit cards and credit cards. When in doubt, ask to speak with a professional at your credit union.