Money isn’t the most natural thing in the world to talk about. In fact, there are plenty of people who are actually embarrassed, hesitant, or even afraid to ask questions about finances. The fear of judgment is incredibly real and pervasive in society today, especially when it comes to topics like credit card usage and credit card debt. So, let’s talk about it! Using credit cards isn’t always straightforward, and you don’t know what you don’t know — until you ask, of course.
Why are people so afraid to ask questions about credit cards?
“I’ve seen folks who’d rather walk on a Lego barefoot than talk about their credit card habits,” says Taylor Kovar, a Certified Financial Planner and CEO at TheMoneyCouple.com and Kovar Wealth Management. “Usually, it’s the fear of looking like they’ve been playing financial Jenga while wearing a blindfold, but mostly it’s them feeling self-conscious about the size of their debt.”
Even if you don’t have a high amount of credit card debt or you haven’t even opened your first credit card account yet — in fact, especially then — you’re going to have questions. Talking to others to gather information, doing online research, or even asking for help from a professional can help you learn what you need to know about using credit cards. “We all know money can be a touchy subject, but my job isn’t to give out gold stars or red pen marks,” Kovar says. “I’m here to help, not to judge.”
With that in mind, below, you’ll find answers to some of the most common questions about credit cards you might night understand but are too afraid to ask.
1. How do I get out of credit card debt?
Asking questions about credit card debt can hold an even more significant amount of hesitation than asking more general questions about credit card usage.
According to a NerdWallet survey, people all across the U.S. are embarrassed even to admit that they have credit card debt, let alone ask for help with it. Regionally speaking, 61% of Midwesterners say they would not speak with others about their credit card debt, with 56% of Southerners, 52% of people in the Western region, and 47% of those in the Northeast agreeing with that sentiment.
Getting out of credit card debt can require strategy and consistency, but it absolutely can be done. There are a wealth of resources available online to help you figure out the first steps to take and get a solid plan in place. Check out our guide to paying off credit card debt fast as a starting point.
If you’re looking into clearing your credit card debt, Credello has viable personal loan lenders for you to check out.
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2. What does APR actually mean?
This is one credit card question that Kovar says he gets most often. For credit cards, APR means Annual Percentage Rate. Your credit card’s APR reflects the cost of borrowing money, including interest, fees, and charges for maintaining a balance or carrying debt. This rate can also provide insight into the cost of credit over a year, so that you as the consumer, can evaluate the potential financial impact of using a specific credit card on your overall finances.
There are a few different types of APR to understand, each varying based on how you’re using your card. For example, when a balance is carried on a credit card, your credit card company calculates the interest owed based on the APR. This interest is usually applied monthly, and if the balance is not fully paid, the remaining amount will accumulate interest in the following months. Additionally, a higher APR may be assessed for cash withdrawal or when applying penalties for making late payments.
3. How many credit cards should you have?
The number of credit cards you should have can vary based on a number of personal finance factors. It’s generally recommended to have five total credit accounts for lenders to get a solid picture of your complete credit history, but this can be a combination of loans and credit cards, so it doesn’t necessarily mean that you need more than one credit card. In fact, having too many credit cards can have a negative impact on your finances if you’re unable to keep up with payments.
The “sweet spot” for everyone when it comes to the number of credit cards you have can vary. But overall, if you stay on top of your payments, maintain a positive credit score, pay off your balances each month, and carefully monitor your credit, more than one credit card is likely just fine. It’s also never a bad idea to take a look at your overall financial situation and ask a trusted financial advisor their advice before you add another credit card to your collection or close out an account.
4. Should I pay only the minimum amount due?
Especially when money is tight, this credit card question is one most frequently asked of financial advisors. In short, paying the minimum amount due on your credit card is just that — the minimum. It’s often a good idea to pay more if you’re able.
“One of the most important habits you can establish with credit card bills is to pay at least the minimum balance each month. This way, you can avoid late fees and keep late payments from showing up on your credit reports,” according to John Egan for National Debt Relief. “Better yet, try to pay more than the minimum balance each month. This helps you pay off debt more quickly so that you don’t rack up as much in interest charges.”
5. Will using my card too often make my credit score decrease?
Kovar says he gets this question frequently from clients. Using your credit card frequently does not necessarily cause your credit score to decrease. Once again, a variety of personal factors come into play when it comes to your credit score and credit card usage.
Some factors like high credit utilization and making late payments, can negatively impact your credit score. So, it’s important to maintain a responsible credit utilization ratio and make timely payments in order to help maintain or improve your credit score. Tracking what your credit score is doing as your use your card can help you understand how your usage is impacting your score.
6. Should I carry a balance to build credit?
It is not necessary to carry a balance on your credit card to build credit. In fact, paying your credit card balance in full and on time each month demonstrates responsible credit management and can positively impact your credit score, while owing a lot of money can negatively impact your credit score. A credit card utilization below 30% is generally recommended to maintain your credit score, while lower utilization percentage can improve your score. Carrying a balance on your card can result in accruing interest charges, which is why many experts recommend paying off your card’s entire balance each month to avoid unnecessary interest expenses.
7. Can I pay off a credit card with another credit card?
This credit card question comes up often for Kovar, who calls it his “personal favorite,” explaining that it’s often phrased to him in this way: “Can I pay off this credit card… with another credit card?”
Though the technical answer here is no, but there is more complex reasoning to consider when you’re asking this question. While it is usually not allowed to pay off one credit card with another card issued by a different institution, balance transfer cards and cash advances offer a loophole of sorts to this question.
A balance transfer credit card allows you to move your existing high-interest credit card debt to a card with a lower interest rate, typically with a 0% introductory APR for a certain period. This can help save money on interest and consolidate debt into one monthly payment, but there are some pros and cons to consider before taking this route including fees, credit score requirements, and timing of the card’s introductory period.
8. Should I use credit card cash advances?
Getting cash back on a credit card at an ATM or receiving a cash advance from your card can seem tempting, but the terms and conditions for doing such can be confusing — and sometimes costly. This is essentially a short-term loan against your credit with a high interet rate and not all credit cards offer them. Due to the high cost involved, credit card cash advances should generally be avoided unless it’s absolutely necessary. Instead, consider other options like personal loans or dipping into your emergency fund when you need cash quick.
9. How do credit card rewards work?
Not only do many people usually have questions about the financial aspects of using their credit cards and their usage related to credit card debt, but most people don’t have a solid handle on how to navigate credit card rewards. “The mystery of how to juggle rewards and cash back without dropping the ball also comes up a lot,” explains Kovar.
As it turns out, there are a lot of perks to being a credit card holder — you just have to know how credit card rewards work. This can take some research and, yes, asking even more questions, but in the end, if you aren’t taking advantage of your card’s rewards, you could be leaving real money on the table.
Using credit cards comes with plenty of questions. From how to use them without wrecking your credit to how to dig yourself out of credit card debt, you don’t know what you don’t know.
“Here’s a pearl of wisdom: the only silly question is the one you never asked,” Kovar says. “If you’re feeling shy about your credit card debt, remember that I’ve seen it all. I’m your financial doctor, and trust me, I have seen it all hundreds of times before. I am on your team, and we can’t win this financial game if you hold out on me.”