3 HUGE mistakes millennials make with credit cards
Credit cards have a bad name - largely due to us millennials who spend more than we earn and use the term, ‘i’ll just put it on my credit card’ more often than not. But have no fear, these plastic bad boys are not all that bad. They can help us in so many ways from earning cashback, providing protection in light of fraud and building a solid credit history.
Here are 3 HUGE mistakes millennials make with credit cards:
1. Paying credit card late fees month after month
This is a big no no. To me it signals poor money management and that you regularly dip into the red. If you slip-up once it’s a mistake, unfortunately after that it becomes a choice.
Natwest charge a £12 late payment fee and enforce a similar charge for going over their credit limit. With Barclays, if your payment is returned to them after a direct debit doesn’t go through, it means you miss your minimum payment that month. In this scenario you would be slapped with both a late payment fee and a returned payment fee!!
Tip: Ever tried calling your bank’s customer support team and tried to get the fee waved? If you never ask you never get - often they actually wave the fee if you promise to be a good boy next month - trust me, i’ve tried it!
Hint: One way to mitigate such costs is to use your bank’s app to track bills & payments, whilst ensuring all of your direct debits are due around the same date.
2. Only making minimum payments
This is a school boy error. To put your anxiety to rest you may believe that paying the minimum amount is better than dong nothing. Technically that is true, however, in the background something nasty is going on.
You can be locked into perpetual debt, whilst fat cat bankers continue to squeeze profits out of you. What I mean is, banks want to set minimum payments at rock bottom levels - it means you are in debt for longer and in turn you pay more money to them in the long-run. Interest charges are seriously damaging to your financial health and they can accumulate quickly. Ultimately, the more you pay, the quicker the debt vanishes.
Tip: The longer you carry a balance on your piece of plastic, you run a higher risk of hitting your credit limit. If you breach this, not only would it cost you an 'over credit limit fee', however, your credit score would become also become vulnerable.
Hint: Often, millennials kick the debt down the road as we are scared to face it head on. However, a 0% balance transfer card could be the answer. This is when you move existing credit card debt from one card to another that charges 0% for a specified period of time. It can be a great alternative for those currently paying a high interest rate on existing credit card debt. Notably, the bank makes money if you don’t clear your balance before the end of the 0% offer period as thats when you then begin paying interest. Secondly, there is a fee to transfer the debt across - so beware and don’t forget to compare.
3. Believing rewards are useful just for families or big spenders
For those who cannot be trusted with credit cards, you are missing out!! Those who have them are often shocked about the type of rewards you can earn for doing nothing (except keeping your spending habits the same). Whether it’s cash back, avios, or Tesco club card points, there is something for everybody. So, why not get rewarded every time you spend?
It all comes down to what appeals to you. I currently have the Amex Platinum Cashback Everyday card which costs me zero in annual fees and provides me £100 cashback if I spend £2,000 within the first 3 months. The key for me is to ensure I pay off my balance in full every month, or I am charged 22.9% representative APR which rapidly eradicates any benefits. As I said, I pay zero in annual feels for my Amex….proving you don’t have to be a hotshot to own one of these. Paying annual fees can be beneficial for some if the perks outweigh the annual cost, however, for me it didn’t add up.
Tip: For me, the key is to view these types of cards as a way to earn rewards on your existing spending habits...it's not an excuse to spend more! As a result, set up a direct debt to repay the debt in FULL every month. Otherwise, say goodbye to any monetary gains and hello to paying interest.
Hint: Remember that each credit card application will leave a mark on your credit file. Minimising applications is key and using eligibility calculators to play the odds is crcuial (Click here).
Credit cards are like playing with fire - if misused you will get burnt!