"Most people don't grow up. Most people age. They find parking spaces, honor their credit cards, get married, have children, and call that maturity. What that is, is aging."
-- Maya Angelou
Many of us ask for and/or receive lots of tips about marriage and children -- and sometimes we're advised about where to find a good parking spot, too. Credit card tips are offered less frequently, but they have a lot of value, as they can save or earn you hundreds or thousands of dollars.
Here are five top credit card tips. Absorb or act on them and your financial life may be richer for it.
Tip No. 1: Pay off your bills in full each month -- and on time
If you're only going to follow one tip, this might be the most important one: Pay your bills in full and on time. Not paying them in full will lead to an accumulation of debt, which can snowball, and paying bills late can tank your all-important credit score, which can cost you a lot whenever you want to borrow money.
In case that's not scary enough, consider this: If you're late with a single payment, some credit cards will immediately and automatically hike your interest rate into the stratosphere -- often to between 25% and 30%! (That's called a "penalty APR." When you're card-shopping, it's smart to find out if a card features that and to avoid it if it does.) A late fee is also often levied, and that may be as much as $27 for your first offense and more than that for subsequent offenses.
It's easier than you might imagine to end up neck-deep in credit card debt, thanks to their high interest rates. These days, even cards with the lowest rates are sporting rates between about 12% and 14% -- at a time when the highest interest rates banks will pay you in a savings account are only about 1.3%. Imagine that you owe $10,000 on cards and are unable to pay it all off. If your interest rate is 20% and you just leave the debt there, you'll soon owe $12,000, and a year after that, you could owe $14,400. If you charge anything else to the card, your balance will keep growing. We would all love to earn annual returns of 20% on our investments -- and that's just what the card issuers are doing here. Credit card debt is like investing in reverse. Instead of your net worth rising over time, it shrinks, with potentially catastrophic results.
Tip No. 2: Only charge what you can afford
Given that the average U.S. household had $8,377 in credit card debt in 2016, according to a recent WalletHub report, many people don't seem to be aware of this tip or are having trouble abiding by it. Charging more than you can afford on a convenient credit card can set you on a path to financial trouble, if not financial disaster. To be financially successful in life -- perhaps even retiring early -- you should aim to live below your means.
Some people think it's OK to just pay the minimum required amount, but that's a terrible idea. Here's why: Imagine that you owe $20,000 on your credit card(s) and that you're being charged a 25% interest rate. If your minimum payments are 3% of your balance, you'll be starting out paying a whopping $600 per month, meaning you'll have to come up with $150 per week. If you can't, your balance will be growing, digging you deeper in debt. What if you do make that $600 payment and all future 3% payments? Well, according to a Bankrate.com calculator, it will take more than 30 years to pay the debt off, and your total payments will exceed $63,000 -- all for a $20,000 balance owed.
Tip No. 3: Choose your card(s) carefully
For maximum benefit when using credit cards, be sure to choose and use the card(s) that best fit your needs and spending habits. For example, if you charge a lot at many different places, you might opt for a general-use cash-back card. If you spend a disproportionate sum at Amazon.com, you might want a card that gives you a generous percent of cash back at Amazon. Those who travel a lot might want to use travel cards to rack up points or miles that can be applied toward airfares, hotels, and so on.
If you're struggling with credit card debt, forget about rewards cards and favor low-interest rate cards. If you're determined to pay off your debt in the next year or two (which is a terrific idea), check out the best balance-transfer cards.
Tip No. 4: Avoid paying fees
Credit card issues rake in a lot of money from fees. According to industry research organization R.K. Hammer, credit card fee and interest income topped $163 billion in 2016. $12 billion came from penalty fees -- such as the ones levied when you're late paying a bill. Another $12.5 billion was generated by annual fees, while cash advance fees totaled a hefty $26.6 billion. Try to avoid any fees you can, such as by paying bills on time and not using a card's cash advance feature, as that's a costly way to borrow money.
You can avoid annual fees (which are often $75 or $100 and can sometimes exceed $500) by simply choosing cards with no annual fee -- and most cards actually don't charge an annual fee. You're not out of luck if your card does charge one, though, or if a card that would offer you great rewards charges one. According to a recent report by CreditCards.com, 87% of cardholders who contacted their card issuer were successful in lowering or eliminating their annual fee. Some 31% negotiated the fee to a lower amount, and 51% got it waived entirely. If you're a good customer, it can't hurt to ask.
Tip No. 5: Make a good thing better
Finally, just as the please-waive-my-annual-fee gambit above suggests, there is much that's negotiable when it comes to credit cards. You might be surprised to learn how possible it is to get a lower interest rate on your debt -- just by asking. According to the CreditCards.com report cited above, 69% of cardholders who asked for a lower interest rate got one, 87% of cardholders who asked for a late-fee waiver were successful, and 89% of cardholders were given a higher credit limit when asked.
Those are powerful results. A lower interest rate alone can save you hundreds or thousands of dollars over the long run, if you're carrying a lot of credit card debt.
It's good to be credit card-savvy as you manage your financial life. Let the benefits of credit cards accrue more to you than to your card issuers. Good habits can keep your credit score high, too, which can also make your financial life easier.