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What You Don’t Know About Credit Cards

MoneyWise

Christian talk radio with Rob West

August 10, 2022

For most people, for good or ill, credit cards are a part of everyday life. We think we know everything about them, but often, that's not true. We’ll talk about some things you may not know about credit cards today on MoneyWise. DOUBLE-EDGED SWORD Okay, so the first thing you may not know about credit cards is that the rewards most of them offer are really a double-edged sword. Sure, they’re nice. Who doesn’t want to earn a free airline ticket or get 2-5% cash back on purchases? But the value of those rewards is quickly gobbled up if you don’t handle credit cards properly. The only way to do that is by paying them off in full every month. If you don’t, the interest you pay will quickly add up to more than any rewards. That's why credit card companies love to hand them out. It’s a bi.netgain for them. IT WON’T SAVE YOU The next thing you might not know is that a credit card won’t save you if you have a financial setback like a job loss or the need to replace an expensive item. Believing it will prevent you from saving up an emergency fund. Think about it, if you don’t have money on hand to meet an emergency, you have to borrow, usually by using a credit card, at very high interest. A rate of 28% isn’t uncommon. So start saving now to avoid that. Set a goal of $1500. Then work your way up to one month’s living expenses. And keep going until you have 3 to 6 months’ worth in the bank. Never rely on a credit card for emergencies. YOU PROBABLY DON’T NEED IT The next thing you may not know about that piece of plastic in your wallet is that you don't need it to shop online or rent a car. Once upon a time that was probably true for renting a car, but it’s never been the case for buying online. The fact is, in most cases, a debit card will work just fine for those things. In the case of a car rental, the company will probably put a hold for something like $500 on your debit card, just like they would with a credit card. CAN YOU GET REWARDS WITHOUT A CREDIT CARD? Here’s something else you probably didn’t realize: You don’t need a credit card to get rewards. Let me explain. You can give the reward to yourself by using cash instead of plastic. Studies show you’ll save 10-30% by using cash. That’s because you know it’s real money out of your pocket. You naturally spend less. And safe to say, you’ll never get 30% cash back from your credit card company. BEWARE OF STORE CARDS The next thing you may not know is that having a store credit card usually won’t result in big savings. Sure, a store card may come with a great introductory offer, but store credit cards have some of the highest interest rates out there. They may actually make more money in interest than they do selling things. A store credit card is never a good idea unless you’re relentless about paying it off every month. And even then, you don’t need it. A regular credit or debit card works just fine. YOU DON’T NEED A CARD TO BUILD CREDIT We’ve saved probably the biggest thing you may not know about credit cards for last. You need a credit card to build credit! You can build a credit history just by paying your bills on time. Depending on your income, of course, you can even qualify for a mortgage by paying your rent, utilities, and perhaps a car loan on time every month. You may want to check with your landlord about having your payments reported to the credit bureaus. They won’t necessarily do it, but they do have that option. Or you can pay a service to report them for you. But keep in mind, the reverse is also true. You can ruin your credit by not paying your bills on time. If you feel you must get a credit card to build up your credit history, you can get a secured card. It allows you to spend only the amount of money you pre-load into the account. Then, make one purchase each month with the card for a budgeted item, and you’ll begin to build your credit history. Just make sure the issuer reports those transactions to the credit bureaus and that you pay it off in full every month. Most credit card companies offer a secured version. By the way, you can also build your credit history by becoming an authorized user of someone else’s credit card, like a parent. You don’t even have to use the card to get the benefit of the cardholder’s payment history. So those are some things you may not have known about credit cards. We hope they help you use them wisely. On today’s program, Rob also answers listener questions: ● How do you determine the tithe amount on a property sale? ● How can you get started with a household budget? ● Should you entertain an offer from someone offering to buy your house for cash?

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