KJ: A few months ago we posted about ways to use credit cards to your advantage and what the credit card companies don’t want you to know. This post takes a slightly different spin to focus on six credit card guardrails to commit to:
Avoid a balance
KJ: Credit card companies want you to carry a balance from month to month since that is their ‘cash cow.’ With interest rates so egregious (typically 16+%), carrying any balance can make it all that more difficult to get back on the right track. It’s not realistic to make 16% on your investments, so why give that option to the credit card companies?
AJ: This is credit card ownership 101. If you HAVE to carry a balance from one month to the next, do so with an achievable, manageable plan in place prior to doing so. Prior to Kirby and I marrying, there were some months where I needed new shoes for work because my current pair was literally falling apart and couldn’t wait to buy them until I had enough money in my checking account, so I put them on a credit card. I never allowed myself to carry the balance more than one month from the date in which I added the purchase to the card. Needing new shoes shouldn’t open a gateway to excessive spending.
Avoid teaser interest rates and gimmick rewards
KJ: Holding a card for a long period of time is good for your credit, so take the time to sit down and evaluate what the card’s benefits are beyond the initial term. Often, when you ‘lift the hood’ you will find it isn’t the great product that first appealed to you. One such example are department store and merchant specific cards: they are often not worth the hassle of the card. You often get a one-time discount and nominal rewards, plus it’s more cumbersome to keep track of yet another card with yet another due date. As such, we avoid most of these like the plague (with the exception of our Banana Republic card). It has better rewards than our main rewards credit card, and it gets great discounts that I get to use on products I was already going to buy. So far, it’s the only one of its kind we’ve found…
AJ: Most people we know would agree that it’s horrifying how much credit an unemployed college student can qualify for. Just because you’re not in college anymore does not mean that the credit card offers are any more reasonable than they used to do. Most college kids just plan to buy beer and food, you’re talking about major purchase with serious long-term ramifications if handled improperly. Checkout Bankrate.com if you’re looking for a card.
Evaluate annual fees
KJ: My experience has been that annual fees are often not worth the rewards. You find yourself stretching to take advantage of the reward…the opposite of what you should do! There are so many credit cards available with no fee and with rewards that you can typically find a card that suits your needs while avoiding the fee. Take the time to analyze what you would save compared to another card that may have less attractive interest rates or rewards. If you don’t know what you’re spending, then start by building a budget.
KJ: If you have trouble with credit cards, then be honest with yourself and do not apply for them, or at a minimum only keep one on file. The potential credit score benefits of having more cards coupled with low to no balance seldom outweighs the interest, penalties, and headache that it can bring if it gets out of control and you build up a balance. In a culture of overindulgence, it’s easy to binge on credit. Making a purchase in today’s world without credit is like telling a person with a food addiction to avoid food. It may not be an all or nothing conversation. It may take a lot of time and struggle, but learning to coexist with credit is a powerful discipline…especially if you can turn that struggle into triumph by getting rewards on purchases you were already planning to make. That will surely make your wallet happier!
Know your wallet
AJ: Make sure that you know what credit cards you have. If you can’t immediately identify how many credits cards you have and with what company, it might be time to evaluate your ability to keep a credit card at all.
Learn from your mistakes
AJ: As you consider your long-term goals, consider the damage that debt can do to those possibilities. I recently heard a woman in her 50s tell a story about how credit cards from years ago have continued to prevent her from purchasing a home at all because she cannot qualify for any kind of loan at any level. How devastating! To be able to afford monthly payments on something that would improve your lifestyle but not be able to receive the initial capital necessary to take that step based on mistakes you made years ago is truly life-changing. Fortunately, bad credit by law has a limitation on how long it can stay on your credit report (seven years from the last date of activity, but potentially up to ten years), so it won’t haunt you forever, but it can surely drag you down for years!
- Have you found a card that is worth the annual fee?
Tell us about your credit card woes and struggles. What helped you break free?
What are the credit card rules you live by?
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