Why These Credit Card Mistakes are the Worst

How do you feel about credit cards, in general?

Most have a love, hate relationship with credit cards.

They love them in a bind or pinch but hate when that bill shows up, and they realize that buyer's remorse sets in and they actually have to pay for what they bought.

The thought behind credit cards, specifically using them, stems from all the best intentions.

Credit cards, for all their bad publicity and what ails them, aren’t really intended to have such a porous reputation.

For those who are mired in debt, credit cards are the root of that evil, the sole reason for their plight, based on how convenient they are and how well they’re marketed, not the simple fact that they were misused ultimately by the consumer.

The truth is credit cards have their upside, provided they’re used with the right intentions and properly, rather than as a source of income at worst or a bridge between paychecks at best.

The credit card plight isn’t a random one or something that is only for a small percentage of the population.

The fact remains that credit card debt is in the thousands per person and household, and the propensity to use them is also something that hasn’t waned, despite plenty of equally moving advertising and marketing about how poorly the average person manages their debt in this particular aspect.

The statistics that surround credit and debt in general aren’t so pretty.

The average person has just over $4,000 in debt per person and goes as high as $5,839; Store credit cards (department stores) are around $1,841 per person, and the average balance on credit cards at the end of last year is up 2.7 percent from 2016.^[1]

Even more alarming than the totals is just how freely and easily we use credit cards, in relationship to debit cards or, specifically, money that is ours and comes from our bank account rather than being borrowed and repaid at a high rate.

Roughly 66 percent of all purchases are made with a credit card, versus about 31 percent for a debit card in 2017.^[2]

That would suggest strongly that most consumers are reaching for credit cards more than their own money at nearly a two to one margin. This means that either the person can’t afford what they’re buying (because if they could, why not use their own money?), and places a great deal of want over need in terms of having this product or service in comparison to either passing on the purchase or figuring out a way to pay for it, using their own resources not that of a credit card company or lender.

The issue goes beyond just using the cards improperly, but also simply having one and how credit cards affect the entire household budget.

Consider that 75 percent of Americans have at least one credit card, with 44 percent of homes having a credit card with at least one balance.^[3]

This means having a credit card for emergencies only is a bit of a farce, given that having one sits at 75 percent and using it is nearly half.

And with that, comes the obvious: we’re using credit cards all wrong, making huge mistakes and falling deeper into debt.

Here’s a few credit card missteps you absolutely can’t afford to follow:

Day to Day Buying: Credit cards aren’t supposed to be used in cash situations

Perhaps the most damning piece of evidence related to credit cards is what we’re using them for, from one day to the next.

There was a time when credit cards were simply an emergency tool in the event something caught you off guard. You’d spend the money you had, if needed, but should funds be over and above a “nest egg,” a credit card was used as a compliment if no other means were available.

Today, 68 percent of the American population uses their credit cards for every day purchases, such as groceries, gas and other things that never belong on your card, with only 37 percent falling into that emergency category.^[4]

You could easily argue that this is more about buying what you don’t need, and valuing the thrill of the spend versus the mundane, albeit necessary nature of saving money.

Credit card usage is on the rise but you can’t trace that back to higher end expenses or “emergencies,” with a recent study showing that 38 percent of people use credit cards in department stores over debt (34 percent), and a significant percentage who use credit cards at gas stations (27 percent) and supermarkets (36 percent), with the debt card percentage being higher in both cases (41) and (54) but not exactly a landslide, either.^[5]

That same study also goes into detail about how credit cards are going to be lone method of payment, at least that’s how the trend seems to be going. More than half of the population is going to choose credit cards over all other payment methods.

While it should be noted that the rise in households who pay their credit cards in full from one month to the next is on the rise, you can’t overlook how easily we rely on credit cards and that simple swipe perhaps being too easy and convenient in a pinch or just because.

Pay late: The minimum payment hardly means much but it’s better than nothing

It’s always a combination of a head scratcher and sadness when you hear a person talk about paying a credit card bill late, as if to suggest that it’s really “no big deal.”

That chatter should be met with a stern lecture and a little more finger point, underscored with a sense of urgency.

Paying your credit card late (or not at all) is a sure-fire way to dismantle what’s left of your credit score.

More than 30 days of not paying is going to find its way on to your credit score and subsequently lower it. If nothing else, pay the minimum and be done with it, even if it’s only $20 as the minimum and the interest from one month to the next ends up being $17 (net $3 payment). This allows you to show a solid payment history, at the bare minimum of the matter.

Obviously, when dealing with credit cards, you should make it a point to use them, and pay them off in full within 30 days. The latest information shows that the average credit card interest rate is nearly 17 percent (16.93), which is why paying off your debt from one month to the the next is so imperative.^[6]

But despite paying interest at a high level or jeopardizing your credit and score, a study from 2015 shows that late payment fees are the most common fees associated with credit cards, meaning the masses are paying late, with women more inclined to pay late fees (60 percent) versus men.^[7]

In the end, paying on time is paramount and paying off your debt from one month to the next is even better. Why play with proverbial fire of paying late, when 35 percent of your credit score is made up of paying on time?^[8]

Not only does paying late lower your score, but it also can raise your interest rates and make it harder for you to get a traditional loan, like buying a car or house in the future.

Max Out Cards: Poor credit utilization makes you major financial liability

Do you have any idea what your credit utilization is? More importantly, do you know what credit utilization means?

If you’re a potential lender, and you’re looking to loan money to a consumer, that person has to have a credit utilization of under 30 percent, because anything over that number makes you a risk.^[9]

Why a risk, you ask? That’s because that 30 percent number, being over it, says to lenders that you already have quite a bit of debt spoke for, versus the total amount of credit card wiggle room you have.

A person with $10,000 in credit card debt and $20,000 available has a poor utilization (at 50 percent).

There’s really no easy way to fix this, if utilization truly is your issue.

Aside from avoidance at first, you really have to simply try to make more space between what you owe and how much you have available, and that can happen in a variety of ways, whether you make more payments per month than just one (i.e. throwing a few extra dollars toward your balance beyond the one you’re committed to) or ask the credit card companies to increase your available credit.

The latter might seem like a bad idea, but in actuality it’s the closest thing you’ll get to a quick fix in the utilization department. That above example of $10,000 in debt and $20,000 available would sound better if you were upping the total available to $30,000 versus the $10,000 you owe.

Depending on a credit increase should be the last resort type talk, instead trying to get a better grasp on a budget that allows you to pay more toward what you owe in the middle of a billing cycle, rather than waiting until the due date, making a minimum payment and never truly wrapping your arms around how to fix utilization up front.

Having debt doesn’t have to be a way of life, and certainly shouldn’t follow you around in the form of credit card debt.

The real issue with credit cards and amassing debt has little to do with the cards, how you acquire them but more is about a mindset and mentality with these plastic “perks” that is off-based at best and more inside the real of pure delusion.

Think of this stat as a microcosm of what is wrong with how we use credit cards.

Americans, 1,000 polled, so hardly the entire masses but a nice sample size, said they would go into debt just to pay for a vacation, with most spending just over $1,000 to get a vacation charged, rather than simply avoid taking one they can’t afford.^[10]

The same study goes on to say that more than 30 percent polled would prioritize saving money for a trip or holiday excursion rather than saving to buy a house or put toward their retirement.

That is just plain silly.

No one is suggesting that credit cards have to be the root of all financial evil, but treating them haphazardly and without the fear of true and realistic repercussions for poor decision making is anything but good.