Last week, I wrote about the worst credit card rumors that I’ve ever heard and broke them down, explaining why they were wrong and how to avoid falling to the same misconceptions.
So now, I give you the roundup of the TMM Top 20 Dumb Credit Card Rumors:
Common Misconceptions, #1-5
1. “It’s ok to only make the minimum payment.”
2. “It’s ok to miss a couple of payments and then pay a large chunk off of your credit card.”
3. “It’s ok to have a lot of credit cards.”
4. “It’s ok to have no credit cards.”
5. “It’s ok to close all of my credit cards after I’ve paid them off.”
Bright Ideas, #6-10
6. “I should pay off the credit card that has the lowest balance first (or vice versa, the highest balance first).”
7. “It’s ok to charge your credit card up to its maximum balance.”
8. “It’s ok to pay off my credit card with another credit card.”
9. “I pay bills, so I have a credit rating (ex: cell phone bill).”
10. “It’s ok to open a store credit card for a purchase (most likely to get a discount) and then close it after it’s paid off.”
In Denial, #11-15
11. “I don’t need to check my credit score.”
12. “Credit cards are the same as loans.”
13. “Credit card contracts are standard and I do not have to worry about the details.”
14. “If I miss a payment, my terms won’t change (much).”
15. “My credit cards terms will not change for as long as I have it.”
Last Words, #16-20
16. “I cannot go over my credit limit because I get denied, so I am fine.”
17. “My credit card gives me free stuff (ex: air miles, iPods, etc).”
18. “Cash advance is the same as using an ATM.”
19. “Credit cards = free money!”
20. …Got a better dumb credit card rumor? Share the laughs and post it!
~K
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i heard some comment from my officemates that..’ it’s ok that we will not pay our credit card bills coz we’re not capable to pay already’ what happend if we will not pay? are the Crdit Crds cos. bargain the amount or down size the amount?
I’ve got to agree with #3 & #11, and #17.
#3 - Also your information is incorrect. You need to compare the median (average American) to average (average balance) credit card debt. The average American has a balance of ~$2k and that includes charges in the past 30 days. The average household credit card debt is much higher because there are a small minority of households with $50k+ in credit card debt. I have always paid my bills in full every month and paid off the house at 29. How does a lot of credit cards possibly hurt me?
#11 - You apparently don’t know the difference between a credit report and a credit score. It is important to review your credit report for misinformation. If you pay your monthly bills in full and aren’t going to get a major loan (car, house, etc) soon, your credit score is not important. I have NEVER checked my credit score.
#17 - Last I knew cash and gift cards were “stuff”. My wife and I have gotten over $700 in cash and gift cards from our credit cards in the last 12 months. Why should we pay 5% more for gas, groceries, and drug stores and 1% more for everything else?
I think that getting a credit card can be easy if your credit score isn’t low and all of your credit card bills bills are paid on time and not missing any payments. Then your chances of getting a larger loan (home, car, etc.) will be easier for you.
I think it is insane that you are telling people it is a bad idea to have no credit cards. You have no credibility with me now. That is insane advice, and I can’t believe you were even published. I have no credit cards therefore no credit card debt. If you want good financial advice don’t read this column. Read The Total Money Makeover by Dave Ramsey, that is solid financial advice.
The biblical response to credit cards:
“The rich rule over the poor, the borrower is the slave to the lender”
Proverbs 22:7
There is too much emphasis on “credit scores”. If you have problems controlling your spending, don’t have a credit card–forget your credit rating! Your credit report is only important if borrowing money is important to you. It might not be a bad thing if less people borrowed money and learned to save for things they want.
Credit cards are fine for OCCAISIONAL EMERGENCY PURCHASES! If you rely on them for other things (paying other bills, etc.) you are setting yourself up for disaster! To WISELY use a credit card, make sure you can at LEAST pay 25%-50% of you purchases each month. Saves you interest AND your credit score! If you have several cards and are paying the ‘minimum payment’ only…it will take forever to pay off!
Best advice is…when you pay off one card, use that payment to (add it to another payment) and this will pay off the next card much quicker. Then, do the same with the next card. This will REALLY WORK to help pay off your cards much quicker, increase your credit score AND save you MONEY!
Then, CUT UP ALL CARDS EXCEPT ONE! Hopefully, you will cut them all up and just use a bank debit card (all banks offer them…just ask!)!
They work just like a credit card, wont cost you any thing AND NO MONTHLY BILL!
I wish you all the best!
Before I thought credit cards were essential for convenience and organizing expenses, now my wife and I find it more effective and efficient to pay for everything with cash (it makes cents/sense!). There is a strong emotional response when you pay with cash rather than a card (credit or debit). We found out that you tend to hesitate when spending with cash. Thus, cash (not credit) is king.
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criedt cards are dangerous. it is so easy to charge but then you are stung later when you have to pay what you owe with interest.i am neck deep in credit card debt . what do you think about debt settlement company’s?
You need to check credit reports to catch identify theft…. Don’t you guys pay attention.
You also need credit cards to help build credit. This leads to lower interest rates on house loans, auto loans, and lower auto insurance rates…
Check your credit report for errors yes, check your “I Love Debt” score, no. You don’t need a score if you don’t borrow money. What ever happened to living below your means. My debit card gives me cash back and I don’t need a credit card. When you take advice from poor people and do poor people things, you will be poor! Take advice from rich people and do rich people things, you will be rich!
Wow! I am absolutely thrilled that this series has gotten so much attention! This is EXACTLY the type of reactions that I love to see. People are agreeing and disagreeing with me. Awesome!
This series was meant to catch your attention and make you think. It’s simply supposed to represent some of the worst rumors that I have heard about credit cards and such. Of course there is more to the subject – there are tons of books out there about managing debt, fixing your credit report/score and how to improve your personal finances. So I would recommend that you do look at these other materials in addition to this series. And the Total Money Makeover is a good place to start! Thank you for suggesting that! My colleague, Eric, preaches about the significance of that book ALL THE TIME. And he’s not the only one who claims that it changed his life. It’s a great book!
And yes, I understand that everyone has different experiences with their credit cards, credit reports, and so on… Clearly, some of us are more passionate about it than others – but hey, that’s what makes this blog GREAT! I am open to all of your questions, comments and criticisms. Bring it on! I don’t claim to be a financial guru and I’m not a know-it-all. But I am willing to share what I do know (feel free to correct me if I am wrong), as well as willing to learn what I don’t. Leave comments – share the wealth, as they say… of knowledge!
Getting more specific –
Ma. Maulitte Yap, I think you are commenting about how some people try to negotiate down their debt with the credit card company (via a debt consolidation company or by themselves), and they use their refusal to pay as leverage to lower their balance. It is part of the “negotiation” – but from what I understand, it is mostly unsuccessful. I don’t know the specifics, but I remember hearing about a law that passed that made it very hard for the “debt consolidation” companies to work with credit card companies because it gave the credit card company more power to reclaim the debt.
CCUser, the statistic that I used in #3 was a general number that I heard in one of my business classes about two years ago. So it is possible that the figure was for households and that the number is much higher now – given the current economic situation. However, having a lot of credit cards and being able to pay them all off (along with your mortgage, by 29) are two different things. You may be able to teach our readers a thing or two about money management – let me know if you are interested.
As for #11, yes, I do know the difference between a credit report and a credit score. Forgive me if the wording made it seem otherwise. The point is, the credit report and credit score are interrelated – If your credit report has misinformation, it can reflect poorly on your credit score, ie: A mortgage (that you do not have) shows up on your credit report and the person decides to stop paying – this will destroy your credit score. So while I agree that if your credit report shows your correct information, you probably won’t need to check your credit score (unless you want to), it will still be important to check your report on a regular basis.
And #17, at $700 in cash and gift cards in the last 12 months, (at 5% and 1% cash-back), you probably have to spend a pretty penny on your credit cards to see that benefit (somewhere between $14,000 and $70,000 in 12 months). Good for you.
Robert, Thanks for bringing up the Total Money Makeover. Dave Ramsey is a great guy to get financial advice from – I wish I could sit down with him one day! But I am sorry that you do not feel that what I wrote was credible. Remember, everyone has their own opinion about debt and how to manage it. I understand that some people have the philosophy of avoiding credit cards altogether – as I mentioned, my boyfriend is one of them. But there are pro’s and con’s to having credit cards vs. not. It’s all a matter of how you manage it.
Manny, Very insightful quote. I like it!
Curtis, Very good point. All this banter about credit cards and so on is really only important if you choose to have one. And YES! It wouldn’t be a bad thing if more people learned to save for the things they wanted – rather than succumbing to the instant gratification society and borrowing money for everything.
Kev, Good suggestions. I am glad to see that you’ve offered your own suggestions! It reminds me of my dad, actually… he always used to say “Credit cards are for emergency purchases only!” Everyone is different, so it may not work under all circumstances – but it’s a good rule to go by.
JR, My boyfriend would agree with you 100%. He hates credit cards and pays for everything in cash. I, on the other hand, have had debt due to business expenses and so on – bad idea – but lesson learned. Cash is my predominant method of payment now too.
Jerry, In my opinion, debt settlement (or debt consolidation) companies are not worth the time. If you are in serious debt, you need to first see a debt counselor so you can break your old spending habits. Credit cards are troublesome and it can get out of control quickly because it’s addicting for some people – or they just lose track easily. They can also help you figure out a payment plan to pay off the debt that you have. I’d say the debt consolidation company is a second-to-last resort. Last resort is filing for bankruptcy (if it’s that bad). But remember, there are people out there that were probably worse-off than you who dug themselves out of debt. It may seem insurmountable, but it’s always do-able.
I’ll check back later tonight for more comments! Thanks again!
~K
Here’s a good myth:….It’s ok to get a auto loan at a rate of say 6.49% for sixty-months and not take advantage of a $199 balance transfer fee where I will get a rate of 2.99% for the life of the balance transfer. Transferring such a high balance to my credit card is not a good move.
Here’s another:…..Having already received no fewer than three credit cards where my available credit is upwards of $30k, I should be contnent with credit card offers which promise a credit limit of “up to” $X where X is less than the $30k for which I have already established good standing and history.
Ok, Ok..one more:….I should not use a credit card to buy a distressed home because the credit card rate is higher than what I might get a mortgage loan loan for and I am required to pay no less than 2% of the credit card balance.
That any of you have a credit score over 500 would astound me.
Jerry,
Stay away from Debt settlement companies. They will negotiate for a lower balance. But your credit will be totally ruined. Plus their services are not cheap either.
I would recommend credit counseling. They only negotiate for lower interest rates. They may also try to lower you monthly payment. Your credit remains intact. They charge a monthly fee( around $20).
The one I used
www dot christianccc dot org
Good luck
Wow, what a hodge-podge of comments on what is a very individual subject for each of us. Clearly, many of these 20 items may be true, or false, depending on the consumer’s personal situation. In the spirit of sharing resources, I recommend the advice that is provided in this website, the author appears to be a “neutral” party and a definite consumer advocate:
http://www.creditinfocenter.com/
Im curious about when one should file for a bankruptcy!I’m divorced after 22 years and was very dumb to even start getting online payday loands or ccards.I couldnt work for the first year(due to illness),and supported myself and two boys on support as well.Now,Im in school and have student loans as well.Im afraid being late isnt helping me either and the fees are bad.I thought I could handle this and feel like a failure.Im in my fifties now and do plan on a bright future but am not sure which way to turn!I am renting and dont own a home,have a car pament and just feel like Im drowning.Never intended to rip anyone off but I cant get a loan to consolodate any of this.What should I do?I plan to stick to cash for sure in the future but see no way out for now.
I like to think of a credit card like a tool in my tool box and like any tool, if used wrong it will hurt you. I use my credit cards for all the things that I am going to buy anyway, like gas, groceries, restaurants, travel and car rentals. Try to book an airline ticket, room, or car without one. If you are disiplined and don’t think of it as free money you will do fine. I leave the cash in the bank making interest all month and pay the bill in full when it comes in so I don’t pay any interest to the credit card co. I won’t use it for spontainious purchases or bills at all. On the rare occasion that I can’t pay the bill in full when it comes in (3 times in my life) I take the credit card and put it in the drawer until it is paid off. This has always worked for me and I don’t carry credit card debt. Try it and when you get cash back or airmiles it is a bonus.
I find a credit card very handy. I use them for things that I need, but I pay them off faithfully every month. I made a promise to myself after getting into trouble and paying off debts for many years, that if I ever was unable to pay my credit card bill, I wouldn’t use it for 6 months. I get lots of cash back, and haven’t made a late payment or paid anything less than the full amount owed in over 16 years. I have a great credit score, and I check my credit reports three times a year for myself and three times for my husband. I space them out so I order a new credit report for one of us every 2 months. I immediately correct any errors (and there can be plenty in any credit report), but I also check for any unusual activity or an account that I did not open. These I report to the credit bureau instantly! I use my credit wisely now, but for a time, I had to learn to not use credit cards at all (while I was paying them off). It is so much easier to have a number of autopayments charged to my credit card (such as mail order prescriptions) than it is to send off a check every few days. I do keep track of all my expenses (including credit card charges) in Quicken, so I know exactly how much I owe at any given time. I think that is a key factor in keeping those charges under control–knowing exactly how much I will owe at the end of the month. I owe one bill (washer and dryer) that I pay no interest on for a year (I put the money in a 12 month CD that I will cash when the year is up and pay off the bill with no interest due). I also owe on my mortgage, which I am paying off ahead of schedule. So, it is possible to use credit cards responsibly, it just takes discipline.
[...] on MSN Blogs comments there was great discussion on credit reports. One reader referred to it as a “I love debt score,” I take it he has read Dave Ramsey’s total money make over and drank half a gallon of the cool [...]
Credit cards are tools - like anything else.
Used wisely – it pays you – IE rewards cards
Used poorly – it charges you – IE interest rates
Best advice my dad ever gave me – get the credit card that gives you the best stuff and don’t spend more than you could afford with cash.
I have received a decent chunk of change from American Express and Visa over the years – but nothing compares to my folks – who haven’ t paid for airfare in almost 20 years!
Pay your bills… everymonth! Every last cent!
I work as a loan officer at a credit union and i will tell you that your credit score is more important to you than you can possibly imagine. All of you with your horror stories of debt consolidation are crazy. 1). If you settle with a credit card company they will in turn send you a 1099 showing your excess debt loss as income and you will have to pay taxes on it for the following year. You will not get a debt forgiveness letter from them so in turn you get the shaft from the IRS as income. You need to use at least one major credit card and try to stay away from using the entire credit limit available to you. This will tip off your current credit card companies and they will pull a credit report on you once a year and at that time they may raise your interest rate just because of the way that you pay your other bills. Even if all you can pay is your minimum balance pay it on time. If you have extra credit cards, pay off the higher interest rate cards first then work on the next card. After a while you can get them all paid off without going through credit counseling our filing bankruptcy. You should also have an auto loan and possibly a mortgage if you are in a position to handle a mortgage payment. Again all these things must be paid on time. You should also try to stay away from store credit cards because these have the highest interest rates possible. What you are trying to establish is a repayment history on your credit bureau. This will take time, months in fact. So as soon as you open a new account your score could go down as much as 10 points, until you have some months of repayment history under your belt. If you do this your credit score can achieve and remain above 700 which is considered as an “A” borrower which is what all financial institutions are looking for when you walk in our doors. You will pay the lowest rates that we can offer you at the time. The other item that you need to consider is your debt to income ratio. In the financial world that would be considered as 38% of your total gross income. To calculate this you would take all your mininmum payments including your rent or mortgage and divide that by your monthly gross income. Before taxes are taken out of your check. You should never exceed 38%, this way if you our your spouse lost your jobs in todays economy you would still be able to make it for a while until one of you could find another job. You should also have at least 6 months income put away in your savings to tide you over just in case you do run into this problem. So for all of you people who think you know all the answers to lifes questions think about this for a while. Calculate your debt to income ratio and you might find out that you are in way over your heads. But as a loan officer of a financial institution I can tell you your credit score does matter. And unless you don’t care what you pay in interest payments you will follow my advice.
[...] No matter how much personal-finance bloggers write about credit cards, myths about them persist. Kristin at Twenties Money Magazine sets the record straight with “TMM top 20 dumb credit card rumors.” [...]
[...] Top 20 Dumb Credit Card Rumors at Twenties Money [...]