Do you know someone who is afraid to use – or even obtain – credit cards? Many people fear credit cards because they fear credit card debt. It might be your close friend or even yourself who is afraid of credit cards. If you use them correctly, credit cards will offer you lots of great benefits. They are essential to achieving big-ticket goals down the road.
According to recent numbers, the average U.S household owes $15,863 in credit card debt. No wonder you might be afraid to use a credit card, you don’t want to join the statistics.
Can I help you shift those beliefs and that mindset and become apart of another group of statistics?
Here are the top 5 most exaggerated credit card fears that I want you free yourself from so you can enjoy what this guy enjoys.
Besides these points, I will share the real concern that you are potentially missing out on by not having the discipline of having a credit card.
Fear# 1 – “I’m gonna hurt my credit score if I apply for additional credit.”
If you believe that a single credit application will cause your credit score to suddenly fall 300 points, that’s very exaggerated. With each application, there is a hard inquiry. This means that the credit card company is actively searching the directory of scores to find your number.
Yes, it’s true that for each application, there is a decrease in your credit score., but it’s minimal. A good rule of thumb for the slightly decrease is 5 points. So, don’t apply for 15 credit cards all at once, 1 or 2 it’s okay.
You should only have 2 credit cards anyways. Use your credit application wisely. You only have a few “bullets in the chamber”. My advice to you is to never apply for retail store credit cards. The risk of you getting late payments, charged ridiculous interest because you didn’t pay the bill in full, and the complication of carrying 20 different credit cards in your wallet at the same time, does not outweigh the benefit of saving $50 on that purchase.
Concern #1 – “You’re not going to have credit history”
The big issue that most people who are afraid of credit card forget, is that its lenders assess your creditworthiness mostly by the way you’ve borrowed and repaid money in the past. So, not having a credit card can cost you thousands of dollars later in life when you apply for a mortgage.
I prefer to go for the big wins. Save $40,000 because I’ve been wise using my credit card and maintaining a healthy financial life, rather than saving $3.99 on this month’s toilet paper.
So, without history to evaluate your credit habits of paying on time, every time, you’re excluding yourself from the bucket of people that gets the best and most convenient terms out there. Your decisions now will go a long way that generates healthy savings later on. Stop being reactive and start being proactive with your credit score.
Fear #2 – “I’m afraid my information will be stolen”
Identify theft is on the run. More than ever. I understand that fear and we should all be concerned. There are companies out there that will help you in the times of calamity. If your fear is to have your information stolen or your money stolen, the risk is higher when using a debit card than a credit card, don’t you think? Why are debit cards more dangerous you ask? Let me explain next…
Real Concern #2 – “If you use your debit card to buy online, then you should be afraid.”
What most people who are afraid of credit cards forget is that when you use your debit card, that transaction is linked directly to your bank account. If a thief got a hold of that information because you used a fraudulent website, you just gave them direct access line to your hard earned cash.
If you use a credit card, it’s the credit cards’ company responsibility to recoup their money incorrectly spent. Yes, you have to pay them later for legit charges, but fraudulent transactions is their responsibility.
Your cash is protected in your bank account while you call the credit card company to void the transaction. Most likely, they’ll re-issue you a new credit card. Can you imagine the hassle of doing that with your debit card? You won’t have access to your money for the next week depending how your banker handles the scenario. Use a credit card to protect your cash. There is no risk for you, the consumer.
Be smart, be proactive by looking at your credit card statement every month, and be prudent with your spending. Credit cards are a good thing to protect your cash.
Fear #3 – “I’m afraid I’m gonna go credit crazy on this plastic”
You may be frightened by the credit card world. If you have overcharged in the past, you know how easy it is to overspend. This is an important fear to have, but it’s important to know that other forms of payments are not immune to this “fear” either.
If you find yourself where “there are too many days in a month for your paycheck”, this fear of overspending will apply to you no matter if you have a credit card or not.
Also, this will be one of the greatest credit score killers of your financial life. Late payments and total balances in all of your credit cards comprise 65% of your credit score. How long you hold a credit card is just 15% and different types of credit like a loan or a line of credit, comprises only 10%.
So, while limiting credit application is a wise thing to do, concentrating on credit card management is crucial. Your fears are valid, but this is such an easy fix.
Concern #3 – “How much control do you need?”
So, if this is your fear, let me ask you a question? Do credit cards spend money by themselves? Can they crawl out of your wallet, go into the register, and swipe themselves? Yeah, that was 2 questions. Sorry.
If that is your fear, I believe you need to look in the mirror and not in your wallet. You are losing the ability to enjoy the benefits of credit cards by you not knowing how to control your spending habits.
Using a credit card is simple: You don’t look at how much money you have in your bank account by yourself. You also look at your credit card balance and subtract it from your bank account balance. This is how much money you actually have available to you.
You’ve been used to spending with your debit card, checks, or even cash. So, I agree with you that you’re used to looking only on your checking account balance. Wasn’t as easy for you to write a check and forget that you didn’t have money to cover that expense? And later found out that the check bounced?
To have a credit card, it’s to have a tiny bit of a mindset shift. You need to look at 2 places to know what’s going on. You need to leverage the technology we have in place to track your spending in real time. Keep a close eye on both of your accounts online. You can even set alerts to remind you when your spending has reached a preset amount.
Something you just can’t do with cash.
Here is another breakthrough idea for you still struggling with this fear.
GET A BUDGET!
A budget simply means spending less than you make. You have your paycheck deposited directly to your bank account. Then now all you have to do is not overspend what you make. Isn’t that simple? If you know how much you make and didn’t go over that number, guess what?
At the end of the month, you will have plenty of money to pay the credit card bill.
Fear #4 – “I fear I’m going to miss my payments every month.”
That can be a fear that it doesn’t apply to just credit card bills. You can miss a bill payment for your electric, water, insurance, or even child support.
Concern #4 – “Do you have the discipline to be an adult?
There are many things we have to do as an adult. Paying bills is just one of them. Welcome to adulthood 101. If this is your fear, let’s shift your focus to go on to enjoy life, and let the bills pay for themselves. The baby step is to set calendar reminders in your phone. Your time is still required with this baby step, but it’s an improvement from having nothing to remind you to pay your bills on time. May I tell you my favorite method to pay my bills? I hired a part-time assistant to pay my bills for me for free.
Do you wanna know it’s name? It’s called auto-payment.
How about you automate your credit card payments at the end of each month? How about you automate your utilities, insurance, phone, and other bills as well? Now, not only do you not have to worry about overspending since you’ve implemented a budget, you also don’t have to worry about paying your bills on time. Especially your credit card bills!
The fear of missing your payment due date can be conquered!
Now, you’re only left with one job, and one job only:
Your mission, if you choose to accept, is to do one thing right – Not outspend what you make.
Can you handle that James Bond? (Oh, wait, I think I’m getting my movies mixed up 🙂 )
Let’s start small
If I still haven’t convinced you to reap the benefits of using a credit card, start small.
Gather all of your utility bills and recurring monthly bills like Netflix, Amazon Prime, and the likes then automate their payments through a credit card. Go into their website and add your credit card as a form of payment. Then, automate your credit card bill payments every month from your checking account.
The grand finale is to lock your credit card inside your bedroom drawer. Don’t use your credit card for that next iphone or smartwatch (yet). Pay your bills that you have to normally pay every month through your credit card and start reaping the benefits of building a solid credit score and cash back rewards.
You have to pay those bills anyways, why not earn a little bit of money on top of them huh? Then, after you feel comfortable with the idea of credit card, start using it for other things.
Fear #5 – “I fear that I will pay a ton of money in annual fees”
This one is not as big of a fear as the previous ones. Still, people don’t seek to apply for credit cards because of annual fees. We live in the United States of America. The land of the free and the opportunities.
Do you really think credit card companies would not fight for your business by not offering “no annual fee cards”? Most likely, every card out there has 2 versions – a no annual fee card and an annual fee card.
Let me help you with this next.
Concern #5 – “You are facing analysis paralysis.”
While the annual fees on premium cards are often justified by the rewards and benefits offered, you can also apply for some great credit card that won’t charge you annual fees at all.
You will find them everywhere. When applying and comparing no annual fee cards, focus on percentage of cash back, that’s it. Don’t worry about interest rate. If you followed my advices so far, you don’t need to worry about interest rate. You are paying your cards on time, every month.
Cash is king.
Forget air miles and free hotel stays. They are only justifiable in 1 scenario: Before you even applied for the credit card, your normal day to day life required you to fly and/or stay at hotels all the time. Don’t change your lifestyle because of stupid free hotel stays or a free ticket to the Caribbeans.
You just created a scenario for you to go over your budget. Don’t you have to pay for food, events, transportation, and that fancy souvenir when you get there? Those aren’t free and not included on that free hotel or that free flight ticket. So, like a said, cash is king.
Second, if you are a high earner, there is a calculation you can do to check if the annual fee is worth the additional cash back rewards. The higher cash back return is justifiable for the amount of transactions going through that card per dollar amount.
Sounds complicated? Don’t worry. Read on-
Let’s say you have the option to sign up for 2 credit cards.
One card gives you 1% cashback with NO annual fee.
The other card gives you 1.5% cashback, but now you have to pay $99 annually for that extra 0.5% cashback.
The only math you have to do to check which one is a better deal is to divide the annual fee by the difference on cashback percentage (in this case 0.5%).
$99 annual fee divided by 0.5% is $19,800.
Are you going to spend more than $19,800 in a year on that card? If so, it’s justifiable to pay the fee.
Here are some bonus benefits you might be missing out on because of your fears of credit card.
Bonus #1 – Credit Cards offer consumer protection that debit cards or checks won’t offer.
When you make a purchase using a credit card, one of the beautiful things about some credit cards out there is that they offer additional protection for consumers. It can be travel insurance or my favorite, damage protection. If you break the screen on your new iPad that you purchased with a credit card, your credit card could potentially save you money.
It can potentially cover the damages to your iPad up to a certain amount and a set period of time.
Both depend on the credit card offer. So, check it out when applying for one okay?
Bonus #2 – Free Auto rental insurance
There are 2 types of auto rental insurance. They both depend on which type of card you might have. You may have either primary or secondary auto rental insurance.
If your credit card offers primary auto rental insurance benefit, then you’re covered against a total loss of the vehicle. This means you can save money and don’t purchase coverage from the car rental company. When your benefit is for secondary auto rental, you’re covered up to the amount your primary insurance doesn’t cover.
So, it means you still need to have a primary source of auto insurance. It might be your own auto insurance or the rental car company’s option.
Bonus #3 – You’re going to choose a credit card for the long term
The best way to open a credit card is to open with a mindset to keep it active for a number of years. This is because the length of your credit history matters.
Don’t just open a credit card for free cash rewards and then cancel in a short amount of time.
This can hurt a lot of your credit!!
Don’t do it!
Here is the takeaway…
Cash in the bank in today’s world means to have financial security for emergencies and paying bills on time.
Let me share with you the saying that you should: “Have cash reserves for at least six month’s worth of regular expenses.”
This “just in case cash reserve” could help BIG time when life gives you a crisis.
While your fears about credit cards may be very much alive, getting past them is necessary. There is so much you can enjoy, and your financial freedom is essential.
Building credit is good for everyone and one of the easiest ways to build credit is to have credit cards.
Even for people who don’t plan to take any mortgage or loan of any kind, you need to build your credit.
Your credit score might be taken into consideration when renting an apartment, applying for a job, getting car insurance, or signing up for a cellphone plan.
Define your mindset on not overspending what you make, and let yourself reap rewards of more than just the 1% to 2% of your total purchases for the year.
It adds up, but there is so much more to credit cards.
My wife and I buy a few Christmas gifts every year with the accumulation of our cash back rewards.
One time, we bought a very nice camera that would normally cost us $600, for free. All because we had a budget, hired a part-time consultant called auto-pay, and we chose to focus on what truly matter to us: spending time with ourselves.
Credit is an opportunity. Debt is a problem. Remember that okay?
I would love to hear from you.
What’s the next gadget you can reward yourself with because of your sound financial habits of using credit cards in your favor?