Getting the Most out of Your Credit Cards

“Financial literacy is defined as the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources”.

Let’s be real, financial literacy plays a pivotal role in this thing called “adulting”. Our level of financial literacy can dictate how soon or even if it is possible for us to achieve our life goals. It is my sincere belief that the lack of inclusion of financial literacy in our American public school systems is intentional. Nevertheless, there is hope for us all when it comes to letting our debt go. We are connected more than ever (thanks to technology) and have access to many resources as long as we know where to go.

As women, we really do not thrive in financially unstable situations whether we are single, married (legally or common law), divorced or widowed. No matter if you just finished high school, where you're at career-wise or your relationship status… we come with a financial portfolio or resume. Question: How are you handling your portfolio and what are some things you can do to improve it?

Hindsight is 2020

New year! New Me! New Money! New Priorities! As we enter a new decade, we naturally reflect back on the years that have passed by. As I journey through my 29th year of life, I made it a personal mission to strengthen my financial muscles. Like many of my millennial peers, I have what feels to be an insurmountable amount of student debt, unavoidable expenses and enormous barriers to ownership. Despite it all, I’ve learned from my financial naivety by becoming a forever student of minimalism (what I like to call smart consumerism) and wealth building.

Like many high school graduates, I started the "adulting" journey with little to no understanding of the lifelong ramifications of my financial decisions. I opened my first credit card with Wells Fargo that one summer day on my college campus. In my mind, getting a credit card was “the American way”. I quickly racked up that credit card with charges, although meaningful ones (i.e. textbooks, paying my car insurance and gas), without the promise of recurring income. I was gainfully unemployed my freshmen year.

As of 2020, I am still paying off this card, which has had a consistent usage of 70%-85% in the last 10 years. I’ve used my Wells Fargo College Credit Card as an emergency fund during car dilemmas, my relocation to Texas and subsequent 9 months of unemployment. Now this is not a bad thing for me because I’ve learned so much when it comes to credit cards and am scheduled to finish paying this card off by September 2020.

Are Credit Cards Bad?

Many folks will say yes but I personally do not think they are. If ownership of a car or home is a barrier, credit cards may remove or lessen it. Who here has $20K or $250K sitting in their accounts at this time? I certainly do not. I currently do not own a home but plan to start my home savings plan starting January 1, 2021. Truth is, many of us in the United States cannot pay for cars or homes in cash. To mitigate that, building our credit helps lower that barrier just a little bit. I’m not even going to discuss another potential factor (i.e. unfair lending practices) in this article. That is a whole other issue that requires its own byline. Instead, I’d like to take an unbiased look at the benefits and pitfalls of credit cards.

Revolving Credit Card PROS

1. May improve your credit score if used responsibly

2. Have access to emergency funds if needed

3. May have incentives like rewards or cash back

4. Fraud protection

Revolving Credit Card CONS

1. May worsen your credit score if used irresponsibly

2. Can’t be used to pay all bills

3. Interest charged if balance not paid in full

4. Interest charged if not paid before a certain date

5. Harder to control overspending

6. Hidden or high charge fees

7. Confusing Terms

8. Potential of Credit Card Fraud

5 Tips for Getting the Most Out of Your Credit Cards?

One: DO NOT USE YOUR CREDIT CARD AS AN EMERGENCY FUND

Learn from my mistake. Create a liquid, or cash, emergency fund in a high bearing savings account. This will lower your dependence on the credit card and prevent overuse. Here are some great options for high interest savings:

1. T-Mobile Money yields 4% APY for T-Mobile customers and 1% APY for non-customers

2. Marcus by Goldman Sachs yields between 2-4% APY

3. In general, credit union savings accounts have higher APY than those from mainstream banks like Wells Fargo, Bank of America or Chase.

Two: LEARN YOUR TERMS AND KNOW THEM WELL

You can easily prevent interest charges if you know what day the bank begins to charge interest. Learn that date and always pay down your balance before it or split your payments throughout the month to minimize interest built between cycles.

Three: DO NOT CARRY A BALANCE OVER EVERY MONTH

This is a mental trap! You will say, “I’ll pay it off next month.” And then repeat that over and over again until you’re at 99% usage… Yikes! Pretty quickly, you will acquire a heap load of interest and be responsible for higher monthly minimum payments. If you have a stark balance, set a goal to pay it down to 30% and then eventually 0%. David Ramsey's snowballing method is a great way to start.

Four: USE YOUR CREDIT CARD REGULARLY ONCE AT 0%

Creditors can actually close your accounts due to inactivity. I lost a 3 year old account because of this. The length of a credit card account truly improves your credit. If you are a billionaire and can buy things with cash...by all means, close your credit card accounts. If not, due make use of your card for reccuring expenses (i.e. gas) that you can pay back immediately.

Five: INCLUDE RECURRING EXPENSES ON CREDIT CARD IN BUDGET

Include your credit card use in your budget. This will prevent overspending.

All in all, credit cards are neither good or bad. They are just tools to help you reach your financial goals. Just don’t fall into the psychological trap of overspending and over-relying on it. That’s how credit card companies make their money.