If you use it wisely and pay it off quickly, credit can actually help you make money — or at least get other valuable benefits. For example, with credit cards you can:
- Protect your purchases. Some cards include extended warranties or insurance if an item you bought with the card is stolen or damaged.
- Get extra car insurance, for little or no charge. While most insurance policies cover the basics for rental cars, credit cards may offer benefits that bridge any gaps. This means you won’t need expensive rental car company coverage. Some cards also offer roadside assistance.
- Gain peace of mind. Carrying cash can be risky — if your wallet is stolen, the cash is gone. And if a thief targets your bank account through debit card fraud, you may have to argue with the bank to cover your losses. But if your credit card is stolen, your liability is limited to $50.
- Reap the rewards. Plane tickets, hotel stays, discounts — credit card companies offer many types of rewards. You can even get a portion of your spending back as cash. The key is to choose the right reward for you, and to use it. Did you know? 41% of cardholders rarely or never redeem their rewards!
- Enjoy an interest-free loan. If you pay your bill in full every month and your card has a grace period, you’re actually getting an interest-free loan. If you buy something a day or two after your card’s billing ending date, it can be 30 to 52 days before you’ll have to pay for it. Just make sure you have the funds ready when the bill comes in — or you could pay a lot of interest.
More ways to profit using credit:
- You may be able to make money by borrowing to invest This is not always the right approach for everyone, so make sure you understand the risks — and how much money you could lose if your investments don’t work out. If you have an adviser, talk to them first.
- You may be able to deduct the interest you pay on a loan(s) from your taxable income. This may include: - interest you pay when you borrow to invest for income (not for capital gains) - mortgage interest on an investment property - interest on a student loan.
- The details of what is and isn’t deductible can be tricky, so this is another area where advice is a good idea.
- You may pay less income tax when you borrow to contribute to your Registered Retirement Savings Plan (RRSP). When markets are good, the tax-free growth of your RRSP investments should offset the interest you pay. Learn more
- You may make money if you borrow from your RRSP to invest in a home or education. You must repay what you borrow over time. But if your home goes up in value or you can get a better paying job after you graduate, you will come out ahead.
Ultimately, credit itself is neither good nor bad. It’s all in how you use it. Used wisely, it can help you achieve your goals – like buying a home or starting a business – without getting into more debt that you can afford.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.