Unlearning Credit Card Habits From Mom and Dad

Did your parents have some bad financial habits? Here's how to avoid repeating their mistakes.

May 25, 2014 at 5:00PM

Psychotherapists agree that our parents have a profound impact on the people we become. By and large, your parents probably set a wonderful example for you to follow.

But what if your parents had some less-than-ideal financial behaviors? Specifically, how should you go about unlearning your parents' bad credit card habits? The key is to recognize where Mom and Dad went wrong and make a plan to do better on your own. Ready to get started? Take a look at the following details.

If your parents paid only minimums
Why it's a problem: Your credit card company requires you to pay only a small sum every month to keep your account in good standing. But minimum payments usually represent only 1% to 3% of your total balance. If your parents paid only minimums each month, they were digging themselves deeply into debt.

This is problematic for two reasons. For one thing, credit card debt carries a high interest rate. This month, the average credit card interest rate hovers around 15%. If you're not paying off your balance in full every month, you'll end up paying way more for your purchases in the long run.

Also, carrying credit card debt is bad for your credit score. Thirty percent of your score comes from your credit utilization ratio; if your parents consistently used more than 30% of their available credit because they made only minimums, it's likely their scores weren't in tip-top shape. This probably made it difficult and expensive to obtain other loans.

How to do better: Make it a priority to pay your credit card bill in full each month. If this is tough for you, these tips should help:

  • Make a budget. This will help you plan for your credit card spending
  • Track your spending. After making a budget, you should keep tabs on how you're doing. Use your bank's online tools to help.
  • Set alerts. Most credit card issuers allow you to set text or email alerts when your spending has hit a certain threshold. This will help keep you accountable.

If your parents paid their credit card bills late
Why it's a problem: Paying credit card bills late is one of the worst things you can do for your credit score. Thirty-five percent of your score comes from your history with paying your bills on time. If your parents made a habit of paying their credit card bills late, their credit probably suffered.

Plus, paying your credit card bill late by even a day can result in a fee. Most issuers charge $25 for the first offense and $35 for subsequent late payments. This might not seem like much, but it can really add up over time.

How to do better: If you're properly budgeting and tracking your spending, you should be ready to pay your bill as soon as it comes in, so don't delay.

Once again, setting up alerts with your credit card issuer is helpful. Arrange to get a text message or email when your bill is issued, and another in advance of your due date. If you prefer the old-fashioned route, mark your calendar. Find a method that works for you, and stick to it!

If your parents were constantly shuffling credit card debt around
Why it's a problem: Doing a balance transfer to pay off high-interest credit card debt is a good idea if you do it carefully. But if your parents were constantly charging up their plastic and then shifting the balance onto 0% cards, they weren't showing ideal credit card behavior.

First, balance transfers come at a cost. Most issuers charge a fee of 3% of the total amount you're transferring to move the debt. Depending on the size of your balance, this could amount to big bucks.

But more importantly, constantly shuffling debts around is a sign that your parents weren't managing their money well. Everyone overcharges sometimes, but if you're spending and budgeting carefully, this should be rare.

How to do better: If you make a mistake and end up in credit card debt, finding a good balance transfer deal can help you minimize interest charges.

But be sure to take a step back and figure out why you were forced to take this route. Maybe you need to build an emergency fund to help deal with unexpected expenses, or maybe your budget needs tweaking. Either way, take a balance transfer as a sign that you need to work on your financial habits -- and then be sure to do so.

The bottom line: Our parents worked hard to teach us good habits, but they may not have been perfect. If you need to unlearn some bad credit card behaviors, check back often with the Nerds -- we're here to help!

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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