Everyone wants to be loved, but it’s not necessary to be loved by everyone. You can get along just fine if your banker, for instance, doesn’t love you. It’s more than enough to be respected and courted by a bank than to be loved.
What’s the difference? Let Billshark explain.
Credit card debt soaring
Bankers will love you if you charge substantial sums on your credit cards and never pay it off. They’ll be even happier if you make only the minimum payment each month. That’s more money in profit for them, even though it’s a sure route to financial hell for you.
According to Bankrate.com, 42 percent of all U.S. adults have credit card debt. The average U.S. household with credit card debt has an estimated $6,829 in revolving balances (that is, balances carried from one month to the next). That figure was expected to jump to $8,701 in the third quarter of 2019.
Nerdwallet.com reports that credit card balances carried from one month to the next hit $443.96 billion in September of last year, and that credit card debt has increased almost six percent in the past year, and more than 34 percent in the past five years. And CNN recently reported that credit card balances rose $13 billion during the third quarter of 2019.
But do you think bankers would be satisfied with all that borrowing, and adjust their rates accordingly? Of course not. The average credit card interest rate recently hit 17 percent, the highest level in at least 25 years, according to CNN, making this an especially costly form of borrowing.
Despite the fact that the high interest rates were partly blamed on competition among lenders to sweeten credit card offers—travel perks, shopping discounts, and so on—the bulk of their windfall was in profits. For example, Visa reported a 17 percent profit increase in its most recent fiscal year. MasterCard’s most recent quarter saw an 11 percent profit hike in its most recent quarter. Note that these are increases to their already hefty profits. And this in a year that saw three interest-rate cuts from the Federal Reserve.
The price you pay
But while the bankers are making out like fat rats, the average American is losing huge sums of money in unnecessary interest fees.
Let’s take the example of that average $6,829 in revolving balances mentioned above. If that balance carries an interest rate of 17 percent, the holder of that credit card pays about $100 each month in interest, or $1230 a year. And those with lower credit scores pay higher interest rates, as much as 25 percent.
Many people manage to get along without credit cards, but there are disadvantages: It may be difficult to rent a car, shop online, or book a hotel, for example, and it’s easier to build a credit history when you have one or more credit cards.
For convenience sake, however, most people carry credit cards. That doesn’t mean, though, that you have to let them rule—or worse, ruin—you. All it takes is a little knowledge, and the determination that you’re not going to give the banks one extra penny of unnecessary profit.
Here’s how:
1. Use it every month
To build good credit, you need to use the card regularly. This keeps the account active, and gives the credit card company something to report to the credit monitoring agencies.
2. Pay in full
Then pay it off every month. The entire balance, not just the minimum payment.
3. Always pay on time
Do whatever it takes to ensure your credit card payment reaches the lending institution on time: phone reminders, auto pay, calendar notations.
4. Watch your credit utilization ratio
If you have a credit limit of $1,000 and you spend $975 of that in a single month—even if you pay it all off with your next bill—the credit-scoring agencies won’t like that, especially if you make a practice of it. Aim to stay at or below 30 percent of your credit limit each month (the ratio of how much credit you have available vs. how much of it you use, i.e., your “credit utilization ratio”).
These steps will give you the convenience of a credit card and help build your credit score but deny the banks superfluous fees and interest.
Besides bankers, another group that’s trying to scoop up every penny they can from you are the Internet, cable, and satellite service providers, your wireless phone company, and home security company. Billshark can find all the unnecessary charges from these people and save you hundreds of dollars. So send us your bills for a free review. You pay only if we can save you money.