“Borrowing to Pay Me” and 19 other moronic things people do with credit cards
National research and consumer advocacy group Demos states that consumer credit card debt in the United States has risen from $238 billion in 1989 to $800 billion in 2005. It takes a special kind of skill to rack up that kind of debt: extreme irresponsibility. Read on for a collection of the most stupid things you can do with your credit cards. Take these steps, and you can amass your own share of credit card debt!
1. Take out cash advances: Borrowing cash from the credit card company has the potential to send you into a downward spiral of debt. Fees and high interest rates, which are not subject to a grace period, can make for a particularly dismal credit card statement.
2. Use ATM machines for cash advances: Borrowing cash with credit cards is bad enough; what?s worse is using ATMs to do so. The financial institutions that own the ATMs charge exorbitant fees of their own.
3. Give credit cards to children: If you want to teach your child responsible credit card use, make them apply for their own. The incentive to do well is much better when it’s their money and credit rating at stake.
4. Give credit cards to friends/relatives: Don’t provide a tempting situation. Even if your Aunt Miffy is trustworthy, you never know how circumstances can change a person.
5. Allow others access to pin/verification numbers: When you pay for services or products using your card, unscrupulous individuals can surreptitiously take note of your details and use them to make purchases of their own. Pair that with a receipt carelessly left at the counter, and they have access to your name, the card?s expiration date and more.
6. Max out your limits: Your maximum balance is not a challenge or goal. When you’re at or near the limit, it’s time to put your spending on ice. Don’t just apply for another card to max out.
7. Go above 30 percent of your limit: Using 30 percent or more of your spending limit will adversely affect your credit score.
8. Use multiple cards: With ?unbelievable? offers popping up every day, it?s no wonder that most of us have more than one credit card. Bu it?s difficult to keep track of payments when you?re dealing with multiple accounts. Simplify: close or discontinue use of less important accounts like store cards and those with high interest rates.
9. Pay only the minimum balance: Paying the minimum balance does not mean that you?re managing your credit well. Your interest on the remaining balance is compounded every month. Pay only the minimum and you will be left holding the bill for much, much more than you spent in the first place.
10. Pay off small balances first: Accounts with larger balances will accrue the most interest, which will end up hurting your debt more. It?s sensible to focus your efforts on paying off cards with high balances first.
11. Use one card to pay off a balances on another: Don’t jump from the frying pan to the fire. The second card may carry a lower interest, but it?s still borrowed money, and you?re still in debt.
12. Procrastinate when it comes to paying bills: Even if you?re an hour late, many companies will slap you with a fee of $20 or more. On top of that, one late payment can shoot your interest rate sky high.
13. Use them for everyday purchases: There?s nothing more idiotic than using your credit cards for every tiny purchase: a bag of chips, a bar of chocolate, a newspaper and Coke from the stand on the street. These small purchases add up to real money. Do you really want to pay interest on that newspaper for months after it’s been read and tossed?
14. Use them for frivolous expenses: People who do not have the money to take extravagant holidays or buy expensive toys should just refrain from doing so. If you have no real plan for repayment, you’re setting yourself up for disaster.
15. Don?t report their lost or stolen cards: All it takes is one phone call to prevent your lost or stolen credit card from being misused. Wait too long, and you could end up stuck with the bill.
16. Don?t crosscheck statements and receipts: Responsible users of credit cards take care to ensure that they are not billed erroneously. Keep a file of receipts and check them against your monthly statement. Report any anomalies immediately to avoid paying for services you haven?t enjoyed.
17. Use cards without any idea of the interest rate: Sure, you know your initial rate for the card, but has it been changed? A late or missed payment on your account or any other bill can serve as a trigger for your interest to rise, thanks to the Universal Default Clause.
18. Cancel a strategic card: Closing older accounts can adversely affect your credit score by making your credit history look younger than it really is. Keep your oldest account open, even if you don’t plan to use it. Instead, close store accounts and newer, high interest cards.
19. Use a personal card for business expenses: What a nightmare! Keep your payments and business records simple: charge your business expenses on a separate card.
20. Last and most obvious, but not the least: use a credit card when you don?t have the money to pay back the amount spent. Have a payment plan in mind before you make the charge.
A.G. Hopkins
March 28th, 2007 at 8:24 am
Some credit cards issue “checks” with very low interest rates which you can use to pay off other debts. These are both useful and extremely dangerous loans.
Usually, there’s two interest rates. One is a extremely low temporary rate which reverts to the default rate (usually 20-30%) after 6 months to a year. The other rate is higher, but lasts for the life of the loan- IF (and it’s a big IF) you don’t ever make a late payment on this or any other credit card, or in any other way default on the loan.
Make sure you are careful about which check you use to get the money.
This latter rate can be helpful if you have other loans which are much higher rates, or if you have an account which pays you significantly more interest than the loan will cost.
The loan comes with a one-time fee, usually 3% of the loan amount, up to a maximum of around $75. Check your offer carefully for details.
Get a calculator out. At $75, you pay a full 3% on top of the interest they’ll charge you each month for loans up to $2500. After that, the $75 represents a smaller percentage of the loan. Obviously, borrowing $7500 brings the rate to 1%. If you can achieve a better interest rate from a CD than they are charging for the loan plus the fee, you can actually make a little money from the credit card company. However, you have to watch them like a hawk, and NEVER, EVER use the card again for any other purchases while that loan is outstanding. If you do, all payments will be applied to the low interest rate loan, while the purchases you made will sit there collecting interest charges at 20-30%. Not a good deal.
Credit card companies are dangerous and evil. While you can use them to your advantage, it’s not something to be entered into lightly. It’s like striking a bargain with the devil. You KNOW there’s going to be any number of loopholes you have to watch for.
Jim Durbin
April 2nd, 2007 at 1:36 pm
I’ve used the credit card transfers to float some debt for a short-term loan - you really can’t beat a 0% interest rate with a $75 max charge - but we always made sure we payed the money and had enough on our home equity loan to pay off. WE had one card - an American Express Blue that had $11,000 on it at 0% - I made the mistake of paying a set amount each month, but one month, confused payments and payed less than the minimum. BAM - a $35 late charge, and a interest rate of 29.99%. I caught it just eight days later, and the result was $240 in interest payments.
An expensive lesson - and luckily we were just a month from paying it off - so I had the cash - but when we were juggling several balances, we could have had all of our interest payments pushed up at the same time.
A dangerous game, indeed.
EA
April 3rd, 2007 at 9:03 am
This is great advice, the only issue I have is with #10. While there may be a psychological value to paying either the smallest or the largest balance first, it makes the most financial sense to pay off the highest rate first.
Gaming the Credit System
April 7th, 2007 at 10:50 am
#7 is credit-score-savvy advice, but #8 is not. Closing accounts that you’re not using will lower your available credit, which in turn will raise your debt-to-limit ratio, which will lower your credit score. Cancelling a card is usually not a good idea. I would only recommend doing so if it charges an annual fee. See my site for a full breakdown of the best ways to manage your FICO score.