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When to use plastic

Despite their bad rap, credit cards can be useful tools. In particular, they can help consumers build good credit, says Patricia White, executive director of Credit Counselling Canada in Toronto.

"Being responsible with credit by paying bills on time and in full will ensure a good rating," says White.

But you need to use plastic responsibly. Here are the top seven uses for credit cards, according to the experts:

No.1: Tracking your expenses
Credit cards give cardholders the ability to determine where they are spending their money, says White. "Besides your monthly bank statement, the credit card statement will clearly indicate where you have spent and how." In other words, the proof is in the pudding -- if you choose to look.

Your statement is also a great organizational tool that can help you categorize your spending, says Jeffrey Schwartz, executive director of Toronto-based Consolidated Credit Counseling Services of Canada.

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No. 2: Putting a limit on your spending
Pre-set amounts on your credit card can help to limit your spending, says Schwartz. "This is especially helpful with young adults. If you are co-signing a card…that can really help to teach a young adult how to properly utilize their spending." This can also be done with a regular credit card -- you just need to have a lower limit.

No. 3: Collecting rewards points and deals
Cards that have rewards points attached to them can be great for cash back, free groceries, travel points and sometimes even dollars toward the purchase of a car, says Schwartz. And certain companies, such as American Express and Costco, will offer access to special deals because you're a cardholder, adds Schwartz.

But one important point to remember is that a lot of these reward credit cards will charge an annual premium that can be costly if you are on a limited income, says Elena Jara, education coordinator at Credit Canada in Toronto.

No. 4: Exchanging currency
Credit cards can provide the convenience of paying in other currencies, says Jara. "This can save you money in the exchange as well as other fees connected to the conversion."

No. 5: Keeping your money safe
Over the past couple of decades, we have become a cashless society, says White. "People don't carry large amounts of cash any longer basically for safety reasons and having a credit card enables this, especially for travel."

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-- Posted February 13, 2012
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