In an ideal world, we wouldn’t need credit cards or loans. We would save for everything we need and avoid debt and paying interest.

In the real world, however, things aren’t so simple: we often need to borrow to buy big-ticket items. Plus, shopping online, renting a car or paying for a hotel are practically impossible without a credit card.

By understanding the risks of credit and how to manage it effectively, you can maintain a positive and healthy relationship with your money and credit.

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 unauthorized use of your account.

A credit card is also one of the easiest ways to build your credit score. If you use it regularly, make timely payments and keep a low balance, your score will soon climb. Also, if you have a rewards card, the points you earn can translate to free travel, merchandise, add funds to savings, pay down loans, or mortgages. Not the saving-up type? Most cash back rewards programs offer customers cash back as a credit to their account.

Managing your credit cards

Making a budget and sticking to it is essential. Spending only as much as you know you can afford to pay back will ensure that you keep a low or zero balance.

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. Consider switching to a low-interest, no-reward, credit card to start working on getting your balance back to zero.

Keeping a low credit limit on your cards will help you avoid overspending. Banking mobile apps can help you to 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 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 pay at first with a credit card, but using your LOC to pay the balance will help keep your interest payments lower.

Like a credit card, it’s 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 large 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 about your spending. Have a plan for how you will pay it back—on what day of the month and how much.

Monitor your spending and to ensure it doesn’t get out of hand. Don’t wait until you get your monthly statement, keep an eye on what you owe frequently, so there are no nasty 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. While this cuts into your discretionary cash to spend, over time you will likely adjust your spending habits and pay down your loan, unless you keep spending and get further into debt.

Get help managing your credit

Although you may have access to many thousands of dollars in funds, always remember that eventually you’ll have to pay it back, so be careful with how you spend it. If your credit balances get unmanageable, talk to your ATB personal banking specialist. They are professionals who, without judgement, can help you find the best way to pay off the debt and improve your financial situation.