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- I’ve always limited myself to one credit card because I’m afraid of going into debt and lowering my credit score.
- To clear up the confusion, I asked financial advisors questions about credit cards that many are afraid to ask.
- They clarified how credit card interest works, whether cash advances are worth it, and what happens if you carry a balance.
- Read the Insider’s guide to the best rewards credit cards.
Whenever I’m out with friends and we’re about to pay the dinner or drink bill, the topic of credit cards usually enters the conversation. When we lay our cards on the table, everyone shares their opinion on which is better and what kind of benefits they have access to.
As someone terrified of taking on credit card debt or doing anything to lower my credit score, I usually store their suggestions in the back of my brain and continue to live my life with only one credit card.
Earn 5% cash on daily purchases in different places each quarter such as Amazon.com, grocery stores, restaurants and gas stations up to the quarterly maximum when active. Automatically earn unlimited 1% cashback on all other purchases.
Unlimited Cashback Match – Discover will automatically match any cash back you’ve earned at the end of your first year
Earn 2% on every purchase with unlimited 1% cashback when you shop, plus an additional 1% when you pay for those purchases.
5% cash back up to $1,500 in combined purchases in bonus categories each activated quarter. 5% cashback on trips purchased through Chase Ultimate Rewards®. 3% cashback on pharmacy purchases and restaurant meals, including eligible takeout and delivery, and unlimited 1% cashback on all other purchases.
$200 after you spend $500 on purchases in the first three months of opening your account
Yet I always find myself wondering if I’m truly financially savvy by limiting my exposure to credit cards. The truth is, I have a lot of financial questions that I’m embarrassed to ask, because I feel like at age 34 I should know the answer to most of them.
In an effort to make sure I don’t fall victim to money making mistakes, I sat down with financial advisors and asked them the most common questions regarding credit cards. Their answers cleared up doubts and confusion about things I never knew before. Here’s what they said.
We focus here on the rewards and benefits that come with each card. These cards won’t be worth it if you’re paying interest or overdue fees. When using a credit card, it’s important to pay your full balance each month, make payments on time, and only spend what you can afford to pay.
How many credit cards should you have?
Most of my friends have more credit cards than they can count on one hand. I only have one. This made me wonder how many credit cards a person should have.
Certified financial planner Andrew Rosen said the answer to this question depends on how responsible you are with credit cards and your financial situation.
“As a financial advisor, I have four credit cards and I treat them like debit cards, which means I pay them off the same day I use them,” says Rosen.
If you plan to go this route, it might be a good idea to make sure these credit cards benefit you in different ways. Rosen says he has one card for earning cash, another for travel points, one for Amazon purchases, and another specific to the airline he uses most often.
Do I need to bring a balance to build credit?
In a past conversation with a friend, I recall her sharing her credit card strategy of bringing in a balance every month to improve her credit score. As someone who pays off their balance as quickly as possible, I was wondering if I was bringing my credit score down like this.
The answer is no.
Certified financial planner Jason Noble says this route generally won’t help you build credit and will most likely cost you money due to interest payments.
Noble mentions that it can also lower your credit score, and that’s because your payment history accounts for 35% of your credit score and the amount you owe accounts for 30%.
“Payment history takes into account whether you’ve paid your credit bills on time and made consistent payments, while amount owed shows how much you owe in relation to the total amount of credit you have available,” says Noble.
This is why carrying a balance can actually backfire in terms of building your credit score.
Should I Take Advantage of Credit Card Cash Advances?
Introduction to Insider’s Featured APR Credit Cards
0% introductory APR on balance transfers for 18 months and purchases for 6 months
14.99% – 25.99% Variable
0% introductory APR on balance transfers for 21 months (transfers must be completed within 4 months of account opening) and on purchases for 12 months
16.74% – 27.49% Variable
0% intro APR on purchases and balance transfers for the first 15 months
17.99% – 26.74% Variable
Earlier this year, I needed an influx of cash to pay for an unexpected and expensive purchase I needed to make. When I was exploring ways I could access fast cash, I came across the option to take a credit card cash advance, which allows you to withdraw cash from your credit card account, but not without a fee . I ended up not doing it and borrowing money from a friend, but I was wondering if, in the future, that was a good idea.
Noble says that in general you shouldn’t take advantage of cash advances due to the higher interest rates associated with this type of transaction.
“A particular credit card may offer a low or 0% APR on a cash advance, but read the fine print as there are typically periods of time when the balance must be paid or you will get a high interest rate” says Noble.
When you need money fast and are thinking about taking a cash advance off your credit card, Noble says she remembers that no credit card is going to lend money for free for a long time.
“They’re in the business of getting transaction fees from the company and interest rates from consumers,” Noble says.
How does the credit card APR actually work?
Recently, I decided to buy a second credit card and I’m finding many 0% APR offers, which after a period of time, go all the way up to 18-20% APR. While I understand that APR stands for Annual Percentage Rate and is the amount of interest you’ll pay on borrowed money for credit card purchases, I was wondering if there was anything else I needed to know about APRs.
Noble says the APR will only kick in when you don’t pay your statement balance in full. For example, if you have a $3,000 balance on a credit card with an 18% APR, you will be charged approximately 1.5% interest (the APR divided by the number of months in a year) that month. it would be $45.
“Note that $45 is now added to the new balance and is subject to interest being charged in the future,” says Noble. “If you haven’t paid off your balance and you now owe $3,045 the next month, your interest would be $45.67.”
How do I benefit from transferring my balance to a credit card?
A few of my friends recently got into credit card debt and made balance transfers to a new credit card. While I’ve never done this before, I was curious about the benefits of this strategy.
Noble says that if you find a credit card that offers 0% on balance transfers, you can transfer money from one high APR credit card to that other credit card by getting 0% on that balance for a limited time.
While that may seem like a good option, Noble says it’s aware that many credit cards have balance transfer fees, even though there’s an introductory 0% offer, and those fees could impact your decision if they’re high.
“If you go this route, make a plan to pay off your entire balance before time runs out to save money on interest rate charges,” says Noble.