During this time when we are struggling with financial anxiety, many North Carolinians are turning to credit cards for relief. If credit isn’t used responsibly, it can quickly spiral out of control and lead to financial hardships in the future. So how can we make smart credit decisions? Local financial professional Scott Braddock can share five common mistakes to avoid making with our credit cards during the coronavirus pandemic.
What is the latest data from the Federal Reserve telling us about debt in the U.S.?
The latest numbers show that our revolving debt, which is mostly made up of credit cards, dropped below $1 trillion for the first time in three years. This comes after we hit a record high in February. Stimulus checks and increased unemployment dollars from the CARES Act likely played a role in this, since consumers had more cash to use. This shows how consumer behavior has changed since the coronavirus began. People are spending less on things like going to events or going out to eat and are using any extra cash to pay down debt. The high unemployment rate also means more families are being cautious about their money.
If you do need to keep using credit cards right now, what mistakes do you need to avoid?
Not Asking for Help - A survey in May found one in seven people with a credit card are worried they won’t be able to pay their bill in full. If you are finding yourself in a similar situation, ask for help! Some credit card companies are offering assistance by waiving late fees, refunding late fees, reducing interest rates and extending payment deadlines. But credit card companies aren’t going to reach out to you. You will need to pick up the phone and do the leg work. Remember, these changes are temporary options to help you financially in the short-term.
Running a High Balance - Numbers from earlier this year show that here in North Carolina, we rank 26th when it comes to states with the lowest credit card balances. Our average balance is $5,832. Watch your spending right now. Be careful you’re not taking on too much debt. A high balance can negatively impact your credit score. Many of Braddock's clients are baby boomers who are in or near retirement. They need to be careful with how much they are spending, as it could take away from their retirement savings. Braddock's specialty is helping retirees worry less about their money. With the disappearance of pensions and the introduction of 401(k)s, people have to learn how to properly save and manage their money. It’s important to start preparing for retirement at an early age. He shows his clients how they can use and enjoy their money responsibly.
Making Only the Minimum Payment - When balances are high, it will be hard to chip away at them if you’re only making the minimum payment. Doing this could take you months or even years to pay off your credit card. Calculate how long it will take to pay off your balance by making only the minimum payment and how much interest you’ll pay with an interest rate calculator. There is one on my Scott Braddock's website: scottbraddockfinancial.com.
Skipping Payments - Skipping a payment might seem like the right answer in times like this, but the interest rate on the card can grow dramatically and can ultimately hurt your credit score. If you are overdue by more than 30 days, issuers will most likely report you to credit bureaus, flagging you for future loans.If you know you’re going to be late, call and ask the credit card company if they can be flexible. Make sure you also find out if you have to pay back any waived payments and fees.
Opening Too Many Accounts - The more credit cards you have, the more chances you have to get into debt. Each time you apply for a credit card, it can temporarily take a few points off your credit score. If you’re looking for a lower interest rate or balance transfer, you might find your needs can be met if you just ask your existing credit card company for what you want. It’s much easier to retain an existing customer than to recruit a new one!