Advertising
Advertising

7 Common Myths About Credit Card Rewards

7 Common Myths About Credit Card Rewards

It seems that few Americans are actually bothering to carry cash around these days, partly as a result of credit card convenience and reward programs. However, when so many credit card rewards seem too good to be true, how can you separate fact from fiction and myth from truth? Let’s get to the bottom of some of the most persistent credit card myths out there right now.

1. Applying for a Credit Card Hurts Your Credit Score

Simply put, applying for a credit card will not hurt your credit score—up to a certain point. “New credit” enquiries account for about 10% of your credit score; in other words, your credit score will always carry a record of how many credit cards you’ve applied for.

That said, most people have nothing to worry about. Unless you’re applying for a new credit card every month, you’re not going to see much of an impact on your credit score.

Advertising

2. Your Credit Score Improves When You Cancel an Unused Credit Card

Conventional wisdom seems to hold that canceling the cards you don’t use will improve your credit score; but keeping those accounts open, even if you’re not using the card, can actually work in your favor.

Your credit score is determined in part by how much of your available credit you’re actually using. For any of your unused credit cards you’re using 0% of the available credit on that account. This works to your advantage.

However, if the cards in question have a monthly fee that you don’t want to pay, closing the unused, fee-laden ones is probably the right move.

Advertising

3. You Can Earn Rewards While Carrying a Balance

One of the biggest advantages of carrying a credit card is the promise of earning rewards. To fully take advantage of card-holder perks, you want to make sure you’re paying off your entire balance every month.

The credit cards that have the best perks typically make up for it with astronomical interest rates. While you might be earning small rewards by paying just the minimum balance every month, you’re almost certainly going to be paying more in interest than you’re earning back in rewards points.

4. Earning Points and Miles Isn’t Worth It

You might be tempted to think that earning points or miles isn’t worth it. The truth is, if you pay off your balance on time every month, credit card rewards are definitely worthwhile.

Advertising

Studies have revealed that paying with cash can be a big help when you’re trying to stick to a budget. A psychological switch is flipped in our heads when we pay with a credit card, which tricks us into thinking we have more money than we do.

That said, forswearing credit cards entirely isn’t necessary. If you make a habit of paying off the balance promptly, the points you earn simply by making your regular purchases can definitely add up over time.

5. You Can’t Get a Credit Card Just for the Sign-Up Bonuses

Here’s another myth that’s false, but carries a number of caveats. There are some great credit card sign-up bonuses out there right now, which can make it pretty tempting to sign up for a card, make off like a bandit with the bonuses and then stop using the card.

Advertising

Remember what we covered above: signing up for an excessive number of credit cards (i.e. just for the sign-up bonuses) will begin to impact your credit score over time. That said, if an offer is too good to pass up, applying for a new credit card now and then for the sign-up bonuses isn’t going to kill your credit score.

6. Lowering Your Credit Limit Can Improve Your Credit

Having a large credit limit on your cards can be a double-edged sword. Maintaining a lot of available credit is beneficial to your credit score, but you might be more likely to spend since you know you have credit available.

However, before you use your credit card to make the down payment on that new Mustang you’ve been coveting, remember that a high credit limit will only help you if you don’t use it. What you definitely don’t want to do is ask for a lower limit; keeping a lot of unused credit will work in your favor in the long run.

7. Your Credit Score Will Take Care of Itself

Finally, let’s finish off with a reminder that having good credit is more complicated than just paying off your credit cards every month. Credit scores have a number of purposes, and chief among them is to help determine your overall fiscal responsibility.

Even if you’ve never let a balance carry over from month to month, there are still a number of factors that go into determining your credit score: how many open accounts you have, how many cards you use regularly, etc. Maintaining good credit requires something of a strategy, and knowing how to play the game is something we all have to learn at one point or another.

More by this author

10 Surprising Benefits Of Dragon Fruit You Never Knew science projects for kids 20 Awesome DIY Science Projects to Do With Your Kids 8 Healthy Energy Drinks That Can Give You A Boost Without Caffeine insect phobia 17 Hacks To Get Rid Of Bugs For Those With Entomophobia Tutor 12 Great Part-Time Jobs For College Students

Trending in Money

1 The Best Ways to Save Money Even Impulsive Spenders Can Get Behind 2 How to Answer the Tough Question: What are Your Salary Requirements? 3 How Personal Finance Software Helps You Get More Out of Your Money 4 The Definitive Guide to Get Out of Debt Fast (And Forever) 5 35 Real Ways to Actually Make Money Online

Read Next

Advertising
Advertising

Published on November 20, 2018

The Best Ways to Save Money Even Impulsive Spenders Can Get Behind

The Best Ways to Save Money Even Impulsive Spenders Can Get Behind

The truth is, there are many “money saving guides” online, but most don’t cover the root issue for not saving.

Once I’d discovered a few key factors that allowed me to save 10k in one year, I realized why most articles couldn’t help me. The problem is that even with the right strategies you can still fail to save money. You need to have the right systems in place and the right mindset.

In this guide, I’ll cover the best ways to save money — practical yet powerful steps you can take to start saving more. It won’t be easy but with hard work, I’m confident you’ll be able to save more money–even if you’re an impulsive spender.

Why Your Past Prevents You from Saving Money

Are you constantly thinking about your financial mistakes?

If so, these thoughts are holding you back from saving.

I get it, you wish you could go back in time to avoid your financial downfalls. But dwelling over your past will only rob you from your future. Instead, reflect on your mistakes and ask yourself what lessons you can learn from them.

It wasn’t easy for me to accept that I had accumulated thousands of dollars in credit card debt. Once I did, I started heading in the right direction. Embrace your past failures and use them as an opportunity to set new financial goals.

For example, after accepting that you’re thousands of dollars in debt create a plan to be debt free in a year or two. This way when you’ll be at peace even when you get negative thoughts about your finances. Now you can focus more time on saving and less on your past financial mistakes.

Advertising

How to Effortlessly Track Your Spending

Stop manually tracking your spending.

Leverage powerful analytic tools such as Personal Capital and these money management apps to do the work for you. This tool has worked for me and has kept me motivated to why I’m saving in the first place. Once you login to your Personal Capital dashboard, you’re able to view your net worth.

When I’d first signed up with Personal Capital, I had a negative net worth, but this motivated me to save more. With this tool, you can also view your spending patterns, expenses, and how much money you’re saving.

Use your net worth as your north star to saving more. Whenever you experience financial setbacks, view how far you’ve come along. Saving money is only half the battle, being consistent is the other half.

The Truth on Why You Keep Failing

Saving money isn’t sexy. If it was, wouldn’t everyone be doing it?

Some people are natural savers, but most are impulsive spenders. Instead of denying that you’re an impulsive spender, embrace it.

Don’t try to save 60 to 70% of your income if this means you’ll live a miserable life. Saving money isn’t a race but a marathon. You’re saving for retirement and for large purchases.

If you’re currently having a hard time saving, start spending more money on nice things. This may sound counterintuitive but hear me out. Wouldn’t it be better to save $200 each month for 12 months instead of $500 for 3 months?

Advertising

Most people run into trouble because they create budgets that set them up for failure. This system won’t work for those who are frugal, but chances are they don’t need help saving. This system is for those who can’t save money and need to be rewarded for their hard work.

Only because you’re buying nice things doesn’t mean that you’ll save less. Here are some rules you should have in place:

  1. Save more than 50% of your available money (after expenses)
  2. Only buy nice things after saving
  3. Automate your savings with automatic bank transfers

These are the same rules that helped me save thousands each year while buying the latest iPhone. Focus only on items that are important to you. Remember, you can afford anything but not everything.

How to Foolproof Yourself out of Debt

Personal finance is a game. On one end, you’re earning money; and on the to other, you’re saving. But what ends up counting in the end isn’t how much you earn but how much you save. Research shows that about 60% of Americans spend more than they save.[1]

So how can you separate yourself from the 60%?

By not accumulating more debt. This way you’ll have more money to save and avoid having more financial obligations. A great way to stop accumulating debt is using cash to pay for all your transactions.

This will be challenging, depending on how reliant you are with your credit card, but it’s worth the effort. Not only will you stop accruing debt, but you’ll also be more conscious with what you buy.

For example, you’ll think twice about purchasing a new $200 headphone despite having the cash to buy them. According to a poll conducted by The CreditCards.com, 5 out of 6 Americans are impulsive spenders.[2]

Advertising

Telling yourself that you’ll have the discipline to not buy things won’t cut it. This is equal to having junk food in your fridge while trying to eat healthy–it’s only a matter of time before you slip. By using cash to make your purchases, you’ll spend less and save more.

A Proven Formula to Skyrocket Your Savings

Having proven systems in place to help you save more is important, but they’re not the best way to save money.

You can search for dozens of ways to save money, but there’ll always be a limit. Instead of spending the majority of your effort saving, look for ways to increase your income. The truth is that once you have the right systems in place, saving is easy.

What’s challenging is earning more money. There are many routes you can take to achieve this. For example, you can work long and hard at your current job to earn a raise. But there’s one problem–you’re depending on someone else to give you a raise.

Your company will have to have the budget, and you’ll have to know how to toot your own horn to get this raise. This isn’t to say that earning a raise is impossible, but things are better when you’re in control right? That’s why building a side-hustle is the best way to increase your income.

Think of your side-hustle as a part-time job doing something you enjoy. You can sell items on eBay for a profit, or design websites for small businesses. Building a side-hustle will be on the hardest things you’ll do, be too stubborn to quit.

During the early stages, you won’t be making money and that’s okay. Since you already have a source of income, you won’t be dependent on your side-hustle to pay for your expenses. Depending on how much time you invest in your side-hustle, it can one day replace your current income.

Whatever route you take, focus more on earning and save as much as possible. You have more control than you give yourself credit for.

Advertising

Transform Yourself into a Saving Money Machine

Saving money isn’t complicated but it’s one of the hardest things you’ll do.

By learning from your mistakes and rewarding yourself after saving you’ll save more. What would you do with an extra $200 or $500 each month? To some, this is life-changing money that can improve the quality of their lives.

The truth is saving money is an art. Save too much and you’ll quit, but save too little and you’ll pay for the consequences in the future. Saving money takes effort and having the right systems in place.

Imagine if you’d started saving an extra $100 this next month? Or, saved $20K in one year? Although it’s hard to imagine, this can be your reality if you follow the principles covered in this guide.

Take a moment to brainstorm which goals you’d be able to reach if you had extra money each month. Use these goals as motivation to help you stay on track on your journey to saving more. If I was able to save thousands of dollars with little guidance, imagine what you’ll be able to do.

What are you waiting for? Go and start saving money, the sky is your limit.

Featured photo credit: rawpixel via unsplash.com

Reference

Read Next