indicatorCredit and Debt

How to effectively use a credit card and line of credit

By ATB Financial 11 May 2023 3 min read

While living debt-free might be a personal financial goal, chasing our dreams and making big life purchases may require taking out a loan. Many day-to-day transactions such as renting a car or making a purchase online requires a credit card. While using credit tools may be inevitable, understanding how they work can increase your financial literacy and help you manage debt in a healthy way. 

Advantages of using a credit card

Credit cards are a convenient way to pay, whether that’s in person or online. Using a credit card can also protect you from any unauthorized use of your account.

A credit card is also an easy way to help build your credit score. If you use a credit card regularly for purchases, make timely payments and keep a low balance, your score will soon climb. Further, if you have a rewards card, the points you earn can be used for a variety of purposes, such as free travel, merchandise, adding funds to savings, paying down loans or mortgages. Not the saving-up type? There are also cash back rewards programs that offer customers cash back as a credit to their account.


Managing your credit cards

Credit cards with a higher limit might feel tempting, but it’s important to make sure you still work within a budget and stick to it. Spending only as much as you know you can afford to pay back will ensure that you keep a low or zero balance every month.

If you consistently carry a balance, spending a lot to gain rewards or points will rarely outpace what you will have to pay in interest. If interest payments are making you nervous, consider switching to a low-interest, no-reward, credit card and start working on getting your balance back to zero.

Keeping a low credit limit on your cards will help you avoid overspending. Banking apps can help you regularly monitor your credit card usage.

Overspending and carrying a high balance are the main risks of credit card use. Without a budget, credit card balances can quickly creep up to the credit limit.

If you carry a high balance over time, you could end up paying more than the principal in interest alone, plus it will have a negative impact on your credit score. If you have long-term, high credit card balances, look for alternatives. Paying the balance off with a loan or line of credit (LOC) can reduce interest payments and help pay off your debt quicker.

The advantages of a line of credit

For larger purchases that need time to repay, a line of credit is a good, lower-cost option. You might have to initially pay for the purchase with a credit card, but using your LOC to pay the credit card balance right away will help keep your interest payments lower.

Like a credit card, a line of credit is very flexible in terms of repayments, allowing you to pay as much as you want, whenever you want, as long as you meet a minimum monthly payment. With the lower interest rate, carrying a larger balance isn’t as painful.


The risks of a line of credit and how to manage it well

As with any revolving credit, it’s important to be conscious of your spending. Have a plan for how you will pay it back—on what day of the month and how much.

Ideally, you are able to make consistent payments on your line of credit so that you can pay it down while understanding how much interest you’re paying. When it comes to carrying debt of any kind, you don’t want to have any surprises. 

With most online banking services, you can set up automatic payments or transfers to a LOC. This way you know you’re always making the minimum payment, and hopefully more. You’ll then be able to re-adjust your discretionary spending habits to fit within the funds you have left available each month, and feel good about knowing that you’re managing your line of credit accordingly.  

Get help managing your credit

If your credit balance feels unmanageable, reach out to your ATB personal banking specialist. Our specialists can help you with a personalized financial plan to pay off your debt. 



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