Let’s face it, if you’re reading this article, you probably could be a bit more savvy about how you’re using your credit cards. So let’s get right into it, here are five of our favorite myths about credit cards we need to unmask once and for all.
Myth 1: Credit cards are for big ticket items.
Nope! This classic line is basically like saying “I can’t afford this so I’ll use someone else’s money to buy it.” If you can’t afford it, you can’t afford it. Save up. Sorry to hit you with some #harsh #truth, but the whole point of being a H.E.N.R.Y.™, is to eventually break out of the “not rich yet” bracket. The cold, hard truth of the matter is: don’t buy sh*t you can’t afford.
At Stash, we believe that you should use your credit card to purchase everything! As long as you know you can pay it off IN FULL when the bill comes due at the end of the month.
That said, if you have the money sitting in your checking account, definitely put those big ticket items on your credit card and get those points! The key thing here is that you have to have the money first. Carrying a balance on your credit card is straight up bad money management. Which brings us to myth two.
Myth 2: The APR is relevant
If you’re using your credit card correctly, your APR or annual percentage rate doesn’t matter at all. Here’s why:
APR stands for Annual Percentage Rate, and it’s the amount of interest the balance on your credit card account starts to build up. The key word here is balance. If you don’t ever carry a balance on your card, your APR never matters. Some people think that your interest rate kicks in as soon as you spend the money. This is a misconception. If you pay off your credit card bill every month (or even multiple times a month), you never have an unpaid balance and then never have to deal with your APR at all.
Myth 3: You should never open a store card
Full disclosure, we’re guilty of giving this advice ourselves, but here’s the full story.
Here’s the thing, unless you’re spending a lot, the savings you get opening a store card is kind of useless in the long run. By opening a store card, you give the store even more access to market to you. Don’t kid yourself, those monthly emails telling you your card balance are also there to sell you more stuff. If you spend more money at the store in the long run, the savings you get from the store card isn’t really savings.
If you don’t ever carry a balance on your card, your APR never matters.
However, opening a store card can save you money, and even help you build a credit score if you do it the right way. Say you’re about to buy a big ticket item: open the card to get the discount and then pay it off in full. Don’t ever carry a balance on your store credit card. This is true with any card, but is particularly true for store credit cards that often have low credit limits. Say your Bloomingdale’s card limit is $1000 and you spend $700, you’re using 70% of your available balance, which isn’t a good thing for your credit score.
Myth 4: A credit card is free money
If you’re thinking “OMG, I know that a credit card isn’t free money,” we challenge you to check in and ask yourself if you really understand that your credit card isn’t free money. If you ever carry a balance on your credit card, you are using money that isn’t yours and you could probably be helped by a bit of a credit card reality check.
Here’s our best take: don’t think of your credit cards as free money, think of it as a smarter way to use the money you already have.
If you’re struggling with spending more on your card than you can afford when your statement comes around, and if you’re guilty of carrying a balance on your card, check out Debitize. It’s an app that serves as an in-between for your credit card and checking account. That way you can use your credit card more like a debit card. You still get all of the benefits of spending on your card (point, miles, etc), but you stop yourself from spending beyond what’s in your checking account. Did we mention the basic version of the app is FREE!
Myth 5: “I could pay my credit card off if I wanted to”
This is kind of a bonus myth. It’s less a myth and more like one of the most frustrating things we hear clients say about their credit cards. Because here’s the truth, if you wanted to pay off your credit card and you had the ability to, why wouldn’t you?
Unless you are crazy lucky, your credit card APR is probably pretty high, it’s at least high enough to make carrying a balance on your card a really dumb financial idea. Even the best savings account interest rates are only 1-2%. So if you have the money sitting in your savings account while you are racking up 5-20% interest month-to-month on your credit card balance, you are making some poor financial choices.
If you have the means to pay off your credit card, do it! And if you don’t, start taking steps toward being able to chip away at that debt and get more realistic about your current spending until you can.