Money Wise Mom

This post is dedicated to my amazing niece. She is wicked smart and on the verge of becoming a fully baked adult! I visited her recently and we got to chatting about the pros and cons of credit cards. I am inspired to write this post for her. It’s a small brain dump of many things I want her to know about using credit wisely as she steps into the big new world of adulting.

Credit Card Companies Are Not Your Friend

Credit is big business. Companies make their money on both ends of every transaction. They charge vendors a merchant fee and they (hope) to charge you interest. They are giving you a mini loan every time you use your card. If you pay them back within 30 days (a.k.a. the grace period), you don’t owe them any interest. But, if you don’t pay the loan back in full within 30 days, they will charge you EXTREMELY high interest. Credit cards use compound interest, usually calculated on a daily basis. This means interest is charged on your initial unpaid balance plus any accumulated interest from previous days, causing your debt to grow faster over time. It’s pretty gross.

The Canada Credit Cards Market size is expected to grow from USD 0.82 trillion in 2025 to USD 0.89 trillion in 2026 and is forecast to reach USD 1.32 trillion by 2031
Source: https://www.mordorintelligence.com/industry-reports/canada-credit-cards-market

As a Post Secondary Student, Credit Card Companies Will be Throwing Themselves at You!

Let’s think critically about why credit card companies, including big banks, set up welcome tables at universities and colleges across Canada every fall. They want to get their plastic into your hot little hands! You are a fresh untapped market. They hope that you are naive enough to charge up your card and fail to pay it off in full every month. They want to get into your wallet first, before another company does, and before you’ve learned how to spend within your means. As a student you will have lots of expenses, stress, and little income for the next few years. For them, it’s a perfect opportunity to latch onto you and siphon what they can in the name of interest payments. See their promo tables for what they are: vampires looking for a reliable source of blood. The person sitting there is a sales person who typically makes commission for every card sign up. To be clear, you will need to make a deal with these devils, just don’t be seduced by free t-shirts, pens, and travel mugs.

Good Luck Living Without Credit!

Seriously, how does anyone book a hotel room, rental car, or plane ticket without a credit card? While still technically possible, the commerce world just assumes that you will be putting these types of purchases on plastic. Credit cards are not evil, they are a tool. Learning to use them properly will serve you well for the rest of your life.

The Case For Credit Cards

Alright, now that we know Credit Card companies are not our friends, we can go into a business relationship with them with our eyes open. So what do we get out of the deal?

Here are a few good things that credit cards provide:

• Consumer Protection – I’m putting this at the top of my list because it’s one of the best uses of credit cards. Unlike debit cards, credit card companies have a dispute process. Did you buy something online and it never arrived? You can launch a dispute with your credit card company and they can reverse the charges, getting you your money back.
• Longer Warranties – Read the fine print on your card. For example, some cards double the warranty period automatically on items like electronics.
• Incentives (Cash Back Rewards, Points, Travel Perks/Lounges) – There is a broad range of cards with all kinds of incentives. While these are nice they often are tied to how much you spend. Treat like a perk, but I don’t recommend “chasing” points as it’s just a trick to get you to spend more than you otherwise would have.
• Car Rental Insurance – Offered on some cards, just beware of the fine print. Many specifically cover small vehicles and won’t apply to a rental of a larger vehicle like an SUV.
• And More! – There are all manner of perks tied to credit cards.

What’s Your Number?

One of the BIGGEST reasons to have a credit card is to manage your credit score. Your credit score is a metric that companies, banks, landlords, and lenders use to understand if you pay back your commitments in a timely manner. In Canada, credit scores range from 300 to 900, with a score of 660 or higher considered good, and 760+ classified as excellent. Higher scores signal lower risk, resulting in better interest rates and easier loan approvals. A high credit score will make it easier to rent an apartment, give you cheaper insurance rates, get you better mortgage interest rates, and, ironically, make it easier to borrow more money for car loans and more credit cards.

However, if you mismanage your credit card payments (pay them late, fail to pay them, or keep a high balance compared to your total credit) this will hurt your credit score and removes all the benefits mentioned above. So be aware.

Don’t Pay Annual Fees

Charging you an annual fee for using their credit card is yet another way that companies make money off of consumers. Usually companies will try to entice you by “waiving” their annual fee for the first year. Just don’t do it. There are lots of no fee cards out there, stick with one of those.

Remember, Only Chumps Carry a Credit Balance

The math is simple and undeniable. When you carry a credit card balance, your future self is going to pay way more for the purchases you enjoy today. Let’s take a look at an example:

Let’s say I get a brand new shiny card. Woowhoo! I treat myself to a hair cut ($120), nails ($60), and eating out a few times ($80). Altogether, I’ve put $260 on my card. In a few weeks, my first monthly bill arrives. Look at that! They only want me to pay $10. Sweet.

Well, that’s the $10 minimum, which is the lowest legal repayment amount credit card companies can require. When I pay it, I’ve paid $10 off of my $260 loan. Now the credit card company can start piling on interest! In Ontario, most standard credit cards have an Annual Percentage Rate (APR) of around 19.99%.

If I only pay the minimum payment, it will take me over two and a half years to pay off my loan and I will have paid about $85 extra as interest. My $260 of charges cost my future self $345.

And that’s assuming I never use that card again to charge anything additional. When you don’t pay your full balance within the month, you lose your “grace period” to pay back your loan. From that moment on, interest is charged on every purchase the second it hits your account. You won’t be finished paying interest charges until you’ve had a $0 balance for over 30 days and even then you likely will be hit with trailing interest!

Don’t Even Think About A Cash Advance!

A cash advance is not the same as charging a purchase to your card. Charges have a grace period. Cash Advances accrue interest immediately with no grace period, often at a higher APR, plus added fees. Unless your life depends on getting fast cash now (for some reason?), do not use your credit card at an ATM for a cash advance.

TLDR;

The big take-a-ways are: Credit Cards are a tool, use them correctly. Don’t carry a balance. Don’t pay annual fees. Don’t take cash advances. Credit Card companies are not your friend!

Love ya, kiddo!