I currently have six credit cards with credit limits ranging from $20,000 to $50,000. I have two primary credit cards that I use that are hotel and airline branded to earn points/miles so that I can fly and stay for free (relatively speaking) when I travel. I have a few tricks I do with the remaining 4 credit cards which I will write about later but continuing on with my addiction to AI, I decided to ask what are some of the biggest mistakes consumers make with credit cards and AI delivered the response below (in italics).
AI Credit Card Mistake Tips
Carrying a Balance: Many people don’t pay off their credit card balance in full each month, leading to interest charges that can quickly accumulate.
Paying Only the Minimum: Making only the minimum payment can extend the life of the debt and result in significant interest costs.
Maxing Out the Limit: Regularly using up the card’s entire credit limit can harm your credit score and lead to higher interest rates.
Taking Cash Advances: These often come with high fees and interest rates, and interest begins accruing immediately.
Ignoring Monthly Statements: Not reviewing statements can lead to missed fraudulent charges and not being aware of one’s spending habits.
Applying for Multiple Cards at Once: Each application can result in a hard inquiry on your credit report, potentially lowering your credit score.
Not Understanding the Terms: Failing to read or understand the card’s terms and conditions can lead to unexpected fees, interest rates, and penalties.
Ignoring Annual Fees: Some cards have annual fees that might not be justified if you’re not using the card’s benefits or rewards.
Late Payments: Paying after the due date can result in late fees, higher interest rates, and a negative impact on your credit score.
Closing Old Accounts: Closing a long-standing credit card can decrease your credit history’s average age, potentially reducing your credit score.
Not Using Rewards: If a card offers rewards, not utilizing them means leaving money or benefits on the table.
Lending Your Card: Allowing others to use your card can be risky, as you’re ultimately responsible for the charges.
Ignoring Credit Utilization Ratio: High credit utilization (the ratio of your card balance to its limit) can negatively affect your credit score.
I am happy to report that I don’t make any of these mistakes but I do take issue with a few things on this list from AI. First, let me tell you what I do with my four other credit cards.
0% Balance Transfers
The primary thing I do with my four other credit cards is do balance transfers to extend financing to 0% for 18 to 21 months or more. I currently have two credit cards that have about $13k and $8k at zero percent. Earlier this year, I made a few very large transactions for a 3 week European vacation trip that I used my hotel/airline branded credit card to charge. While I had the money to pay off the balance after making the purchase, I kept receiving credit card offers in the mail for 0% for 18 to 21 months so I figured why not keep my cash in the bank earning 5% interest and transfer the debt to these other companies hungry for it. Yes, there is a balance transfer fee of 3% or 5% but given the length of time and rate of inflation, it’s worth it to me to do this.
I generally don’t recommend my strategy to most people, you need to have large cash reserves in case something goes wrong and you need to pay off these credit cards off all at once and most people just don’t have the financial stability or savvy to pull this off. One of the AI’s tips is to not max out the limit but I do that regularly with balance transfers and have not had any negative outcomes on my credit rating.
The other “tip” AI left out is to do exactly what I do which is to take advantage of balance transfer offers of 0% for 18 to 24 months and use your excess cash to invest either in T-Bills, bonds, or if you’re feeling lucky stocks and options.