5 Big Mistakes People Make With Credit Cards

Have Your First Credit Card? Watch Out For These!

credit-mistakes-to-avoid-at-all-costs

This is something I’ve wanted to write about for a while. Learning to budget & save money is huge for people coming out of college, and people seem to understand that. However, they don’t seem to understand how to use a credit card. There’s more to it than just swiping it!

I’ve heard so many misconceptions about how credit works. If you are new to this, read my article on credit and come back! Click HERE.

Someone once told me they thought credit card companies would like them more if they didn’t pay their bills. They assumed their credit would go up because their credit card issuer would be happy to receive more interest money. My head popped off my body. It took a while to put it back on.

Now that’s an extreme, but there are plenty of pitfalls when it comes to using a credit card. Here are the top five.

(1) Only Making The Minimum Payment

You making the minimum payment is a credit issuers dream come true. The longer you delay paying off a balance, the more it accumulates and the more interest they can make off you. The interest rate on credit cards is extremely high. No matter what card you go with. An example of how much more you can pay in interest comes from CreditCards.com.

You have a $5,000 balance on a card with a 14 percent APR, and your card issuer’s minimum payment formula calls for you pay 1 percent of the principal plus interest charges monthly. If you pay only the minimum, you’ll end up paying another $5,000 in interest and take nearly 18 years to pay off the balance.

That is insane. Never make a minimum payment unless you absolutely have no other option. And if you do, stop charging things to your credit card immediately and come up with a plan to pay off your debts.

How To Avoid This: Only use your credit cards to pay for things you could afford in cash today. Someone told me this once and it changed the way I saw credit cards. Credit cards are useful for building up your credit, but should not be used to buy things you otherwise couldn’t afford. Then when it comes time to pay, you’ve got the money.

(2) Not Reading Your Statement

It’s important to make sure you can account for all the charges on your card. We unfortunately live in an age where hackers are able to get ahold of peoples information too easily. Somehow, someway, someone may have gotten your credit card number. This has happened to me a couple of times. I once got a $500 charge from the State Of Oregon DMV. Pretty weird.

Now a charge like that is easy to notice, but a lot of hackers don’t do this. Many will make small charges of $10 or less. They do this to make sure it is a working card number and see if they can get away with it. If it works the next time they charge a small amount, maybe the owner of the card is asleep at the wheel. Then they really go crazy.

Always read your statement (most are online now), just to be sure all the charges you see are yours. Many card companies will refuse to help you dispute a claim if you do not notify them of the error in a timely manner. If you let them know as soon as possible, they typically refund the charge and send their claims department after the party who made the charge.

How To Avoid This: Easy, always check your charges. I’ve heard stories from friends who let charges go unnoticed and it ends up costing them. Plus keeping on top of your charges is just good practice to understand how much you’re spending.

(3) Buying Things You Don’t Need

People seem to take credit cards as a blank check to buy whatever they want. Splurge on a night drinking in PB, buying a ton of new clothes, you name it. I can only reason people do this because using a credit card defers your personal payment and may feel to some like they’re not spending money. People also just buy impulsively. You have to remember that credit cards are micro loans. Every charge you put on there, you’re asking a lender to loan you the money to buy whatever it is you’re buying. You’re gunna have to pay them back. Don’t let it get out from under you to the point where you can’t pay them back.

How To Avoid This: Avoid impulse buying. If it’s a material item you want to buy, the rule is to wait 48 hours. If you still really want it, then get it. But not before figuring out how you’ll pay for it when the credit bill comes. 48 hours allows you to reconsider your need for the item. If you have issues putting dinner/drinks charges on your credit card, try switching to using a debit card or cash to pay for these expenses. Then when you run out, you’re out. Might teach you to rein in those expenses as well.

(4) Signing Up For A Credit Card For The Wrong Reasons

This is a huge one. Someone recently told me they opened up a credit card because the lender was offering them a $50 credit towards their first months bill to sign up. That’s crazy. You wouldn’t rush out to buy a new car just because the first months payment was free. It’s a gimmick they want you to fall for.

Lenders offer tons of different promotions and gear them to naïve college students because we fall for them more than anyone. Federal Regulations have reigned in the promotions they can offer, but it’s still the wild west out there. Look no further than the Wells Fargo scandal. At the end of the day, they want your interest money. Chances are if you fell for one of their sign up gimmicks, you’re more likely to not pay in full, pay late, or not pay at all. Then they get to jack up the interest charges.

How To Avoid This: ONLY sign up for a credit card because you need one. Shop around for the best cash back offers, rates, and balance limits to find the card right for you. But don’t do it just to get $50 or receive a t-shirt.

(5) Not Reading The Fine Print

Don’t skip doing this like you do with reading the User Agreement every time Apple puts out a new iOS update. That small text is where you’ll discover when the 0% or very low-interest rate expires. It’s also how you can find out about any balance transfer fees, as well as any offer limitations like your cash back. Many people skip doing this and don’t understand what they’re getting into. Although a cards introductory rate or offers may seem great today (like getting $50), will it be great in 6 months or a year when the intro rate expires?

How To Avoid This: It’s common sense. Just take the time to read through everything before you sign it. It’s worth it.


If you knew about all of these and actively avoid making these mistakes, you’re already well on your way. If this helped you out at all, leave a comment below to let me know what you think!

Sorry I missed last week guys! I was traveling last week and got caught up in some exams when I got back into town. I’ll work to prepare articles in advance on weeks I can’t write.

As always, thanks for reading and see you next week!

-Matt Dalton

Hack Your Credit – A YoungMoney101 Guide

After publishing an article a couple weeks ago on what makes up your credit score, I’ve gotten a lot of questions about how you can improve it. So here we go.

crdidt

 

5 Ways To Hack Your Credit:

1) Get A Credit Card (3 ways)

This may seem obvious, but it’s going to be hard to effect your credit if the only outstanding information on your report is your student loans. You can’t change those right now (besides paying them off) and they’re just sitting there on your report. A lot of people I’ve come into contact with seem to be afraid to open one up. I’ve heard things like, “I don’t want a bad score. So I just won’t open a credit card.”

Credit is a good thing! You definitely want to establish it. Read more about that in the article I wrote on it HERE.

But, “Yo, YoungMoney guy…my bank won’t let me open one.”

Open a college credit card

Okay, so I’ve heard this argument too. First things first, you probably can’t qualify for a normal credit card right off the bat if it’s your first one. But lots of banks have college student specific credit cards! They keep in mind you don’t have a ton of income and limit your balance to a sum much smaller than a normal credit card. If you’re looking to get into one of these, I’d recommend checking with whatever bank you’ve been with for years for a checking/savings account. They’ll be more likely to approve you for this. It’ll also help you if your grades are higher and if you have a part time job to prove some income.

Secured credit card

If you can’t get a college card, check out a secured credit card. I won’t go into too much depth about these, but you can read about them HERE. I’ve never had one, but I have friends who speak highly of their ability to establish your credit. Basically, it works by instead of having a bank lend you money, it involves you putting down a deposit. You lend to yourself. You put down $500 for example, and then can borrow against your money as credit.

Sign up with your parents

Shoutout out to mom and dad. You can be a cosigner on their cards and get the credit history as they pay their bills. Definitely a smart move if your parents are down.

2) Continuously Pay During Each Month (Micropayments)

This is more a way to trick yourself into always paying your bills. Some people complain that by the time their bill comes each month, it’s just too high for them to pay all at once. So they just make the minimum payment and get that interest charge. Instead, try paying each week or even every few days after you make a charge on the card. I personally do this. It just helps me budget better. There is no limit to how frequently you can pay down your balance. It might help you keep on top of your payments and never get the chance to only pay the minimum each month!

3) Keep That Utilization Low

The absolute biggest factor you can influence is your utilization. You can’t do much about the length of your established history and credit card companies know that. So influence the 1 big factor you can. How much of your available balance you’re using! Figure out when your billing period closes each month. It’s on your statement. Pay your bill down before the closing date and your monthly amount is recorded. You ideally want to keep your utilization between 2%-5% at bill closing. This doesn’t mean don’t pay your whole bill, but instead let the billing period close with a small balance of 2-5% of your total available credit. Then when the statement closes, pay the rest of it off.

4) Increase Your Limit! The Big Hack To Credit

This will instantly bump up your score and is really the biggest hack you can do. At anytime you are allowed to call your credit card company and ask for a limit increase. By doing this, you lower your total utilization we just talked about above. I just did this a couple months ago.

If my limit is $1,000 and I spent $100 this month, my utilization is 10%.

If I increase to a $2,000 limit, I’m instantly down to 5% utilization.

See how big of a difference that can make?

Now it is important to note, you shouldn’t ask for a limit increase if you haven’t been paying your bills (duh) or opened the card within the last year. Wait one year to ask for one to allow your bank to establish some history on you first.

5) Ask Your Landlord To Report Your Payments To Credit Bureaus

You can ask your landlord to tell credit companies you’ve been paying your rent. You can also ask utilities companies to do this. Like SDG&E or Cox. They send a report each month saying you’re paying your bills. You’d be surprised how much this can help establish your credit.

*BONUS*

Always check your credit. At least once a month. It’ll only take you 2 minutes on www.creditkarma.com! Being on top of what your score is keeps you thinking about how you can improve your spending habits.

Keep your credit in good standing will save you money for the rest of your life!

You’ll qualify for lower rates on loans and save thousands when getting new auto, home, or student loans.

Thanks for reading and please subscribe to my email list! I’ll send money tips right to your inbox. Comment below any thoughts you have!

Matt Dalton

 

What’s The Deal With CD’s?

Certificates Of Depositcds

(You didn’t think I meant compact disks, right?)

I’m not sure what’s happened, but everyone seems to want to know about CD’s these days. I’ve had at least 6 people ask me about this in the last couple months. In fact, my best friend’s fiancée asked about them last week.

Are your banks trying to pitch you on buying these or something? Just curious. With a strange amount of interest on these and because they’re easy to explain, I’m going to write about them.

So What Is A Certificate Of Deposit?

It’s an investment product offered by banks that offer a specified rate of return over a set period of time. The period of time varies depending on the bank, but common time frames are 6-Month, 1-Year, 2-Years, 3-Years, and 5-Years.

They are super easy to understand.

The deal is that you deposit a preset amount of money with your bank and agree to let them hold onto it for a period of time that you choose. In return for letting them hold your money, they will pay you interest on the money you deposited. At the end of the time period you get your principal (money you deposited) back.

If you’re wondering how this benefits them, it gives them cash reserves. Banks have a complex system of managing all the money that comes in and out. Basically, while your money is being “held” in the CD, they’re lending out your money to other customers or simply holding it because federal law mandates banks to keep a certain amount of money in reserves. But don’t worry, you’ll get your money back. CD’s are FDIC insured and are one of the safest investments you can make. You might as well go buy some T-Bills.

So They’re Safe To Invest In? Sweet, Dude! Sign Me Up.

Yes, they’re basically risk free investments that will make you money.

BUT: How much money you make largely depends on 2 things.

  1. How much you deposit
  2. How long you’re willing to deposit it for (this is the key to CD’s)

The more money you deposit and the longer you’re willing to let them hold onto it, the better interest they will pay you. I’m tempted to explain why time value of money (TVM in the finance world) makes this the case. But, for now, just know you’ll make more money for letting  them hold onto it longer.

So How Much Can I Make?

Ah, finally, what you really wanted to know. The best answer to this is you’d need to figure out how much money you’re willing to invest in one and how long you’d be OK with not having access to that money. This is because if you withdrawal from the CD before it matures, there’s a pretty big penalty. You don’t wanna do that.

You can check your own banks rates on CD’s, but here is a list of the BEST rates I could find. (As of 9/15/2016)

6 Months – Capital One 360 (0.9%) No min deposit

1 Year – Barclays (1.20%) No min deposit

2 Years – First Internet Bank (1.36%) $1,000 min deposit

3 Years – Barclays (1.50%) No min deposit

5 Years – First Internet Bank (1.92%) $1,000 min deposit

I found all these using NerdWallet.com. These also assumed my zip code and a minimum balance of $1,000. You can go play around with their tool to see if you can find higher ones that I did. You probably can, I didn’t dig that hard. I just wanted to give you an example of the going rate for them these days.

So the first thing you’ll notice is that to get higher rates, sometimes there is a minimum amount you need to deposit and that the longer you keep it in there, the more you make. Unless you find a CD like the ones Barclays seems to be offering right now that don’t require a minimum. This happens sometimes because banks just need to raise their capital reserves.

Great! I’ll Go Buy Some!

Well not so fast. Here comes the catch.

You knew there had to be one, right?

CD rates are at historical lows. Check out this graph from Bankrate.com.

dhd

Sorry to disappoint but the rates on CD’s have literally never been lower. You’ll notice a serious drop off somewhere between 2005 and 2010. I’ll let you figure out what happened there.

Anyways, this doesn’t necessarily mean you shouldn’t buy any. Just that they are not what they used to be.

Warning, Unqualified Opinion Ahead!

The reason I’m confused why people are so interested in these is because there are just so many better options out there to make money. Especially for college students who 1) don’t have tons of cash to invest and won’t earn a ton of interest money 2) don’t know where they’ll be 6 months, 1 year, 5 years from now as a CD requires.

Things are going to change for you a lot in the next few years. I’m going to tell you the same thing I told my best friends fiancée:

“What happens when you need that money for something next year?”

Now, this is something I’d really only say in a select set of situations. Investing money is very wise to do at a young age because of the immense benefits of compound interest. It’s the only way you could possibly ever retire! But investing in CD’s in my opinion is just not worth the draw backs of the time factor as well as the minimal amount you receive for all that commitment.

The stock market will give you way better returns than a CD as I’m sure you know.

BUT, that’s actually not what I recommend you do unless:

  1. Have a solid emergency savings account first
  2. Pay off all bad debt (there is a difference between good and bad)
  3. Get a retirement account set up and begin contributing (This is investing, but not in the same sense as a non-retirement investment account that invests in stocks, funds, ETF’s…etc.)

I probably just opened a can of worms. I swear this website will explain all that stuff.

But here’s my deal.

If you’re looking to make a bit of money on your savings (or at least better than your banks measly .01%)…

Check out an online savings.

Online banks can pay beyond 100x better than your brick and mortar bank. They can also pay better than lots of Money Markets!

This is because they don’t have the costs of running an actual retail location you can walk into. It’s all online. Less costs means they can pass the savings onto you in the form of higher interest rates on your savings.

The case for an online bank:

  1. Higher interest rates
  2. Higher than almost any CD under 1 year
  3. Take out your money anytime! No need to commit! (which I know you love)
  4. Often times, better user interface than your regular banks website
  5. Better customer service
  6. Move your money between your bank and online savings account very easily
  7. No monthly fees

OK, So How High?

Up to 1.05%! (Synchrony High Yield Savings)

Ok, so that’s not a ton of money. But hey, it is WAY better than your banks .01% by a huge margin.

You might be able to find a bank with 1.10%. Offers like that happen every so often.

Who Do I Use?

Ally Bank.

They pay 1.00% on all balance tiers. No minimum. I also really like their user interface and think they’ve got good customer service from my own experience with them. I just opened with them 6 months ago. So far, so good! They deposit my earnings at the end of each month. Now again, it’s not a ton. But it’s better than nothing.

I’ll do a full review of Ally soon, but just figured you’d might wanna know who I use. Not being paid by them to say this!

I’ve hoped you’ve learned something and feel better educated on CD’s pros and cons!

Please comment below! I want to hear from you guys. (Yes, you can comment anonymously if you like. Just don’t enter your info and press submit)

I also have an email subscription list! Please subscribe to that and get updates when I post something new!

Please share and help my website grow! I would really appreciate it. It takes time to write these as you can imagine.

Until next time!

Matt Dalton