Ever since writing this article on credit card myths, I’ve been working on expanding my knowledge of credit cards. As I’ve mentioned before on the site, I only have one credit card. I don’t have a lot of experience using reward-heavy credit cards, though because I’ve been traveling a lot from the west coast to the east coast, I would definitely like to get a travel reward credit card in the near future. In my search for more concrete facts (and dispelled myths) about credit cards, I had the opportunity to ask NerdWallet’s resident credit card expert Sean McQuay a few questions about credit card mistakes millennials are making, and for advice about how to solve those problems.
For starters, here are some of the biggest mistakes millennials are currently making with credit cards:
1. Not using them.
Sean says, “The biggest mistake millennials make with credit cards is that they aren’t using them. Millennials don’t understand the importance of building credit from a young age, they don’t understand how credit cards increase payment ease and security, and they underestimate the value of credit card rewards.”
This is definitely the category I fall into. I am a debit card user on a day-to-day basis, and I put bigger expenses and automated bills on my credit card. I do this because I want no “surprises” or impulse buys on my credit card, and I always want to be able to pay off my credit card balance in full. However, I’m not cashing in on a lot of rewards, and I could incorporate my credit card more into my day-to-day expenses if I planned better. However, I think I need to exercise caution with this advice, because using a credit card a lot when you can’t pay off the balance is not a trap that I do not want to fall into.
2. Assuming that credit cards are loans, which should be avoided.
Sean says that a lot of millennials “believe that credit cards are loans on a card, which should always be avoided. In reality, credit cards can be free to use, as long as you pay your balance in full every month.”
At this point, we’ve been trained to be incredibly cautious about debt. In fact, because of the student debt our generation has incurred (and is still incurring), many of us have it in our heads that any vehicle that can lead to debt should not sit in the folds of our wallets. While this mentality is understandable, there are a lot of credit cards that are 100% free, if you pay your balance in full each month. (My bank card is one of the free ones!)
3. Believing credit cards should only be used for emergencies.
According to Sean, the reality is that credit cards are ideal for day-to-day spending. He reminds us that “they’re more secure than cash or debit cards, and they offer rewards for regular use.”
In my personal opinion, there are certain emergencies you should not turn to your credit card during, because you should instead be utilizing your emergency fund. For example, if you have an unexpected medical expense, that could be a bill you would put on your credit card, but then pay the statement off in full with your emergency fund.
4. Often millennials “believe they don’t need to begin building credit because they don’t plan to buy a car or home,” according to Sean.
He says that the reality is this: “landlords and potential employers often check credit, so even if you never plan to need a loan, it’s still wise to build credit. Beyond that, you never know when you’ll want to start your own business and need a business loan, or decide to settle down and buy something big. Credit takes a long time to build, it’s always best to start early.”
After outlining the worst credit card mistakes millennials are currently making, I asked Sean about specific solutions.
1. What do you view as productive solutions for the mistakes millennials might be making with their credit cards?
Sean: “Find a credit card that matches your ‘earn/burn’ profile – a card that earns points on stuff you regularly buy and provides points that will be useful for you. Then, use that card for everything to begin raking in the points. Pay your credit card balance in full every month. Despite popular belief, it doesn’t help your credit score to carry a balance on your card.”
2. What is one piece of credit card advice that you wish you’d gotten when you graduated from college?
Sean: “Cash back cards are as good as, and in some cases better, than travel cards. When I graduated school, every ad I saw was for an airline or other travel credit card trying to sell me on earning free vacations with normal credit card use. I didn’t realize that cash-back cards offer rewards at comparable rates, while offering much higher redemption flexibility (because you can spend cash however you’d like).”
3. What advice do you have for millennials with credit card debt?
Sean: “Consolidate your debt onto a balance transfer credit card to minimize your interest payments, and then work furiously to pay off that card in full before the 0% offer expires.”
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