Almost everyone at one point in time has made a mistake with credit cards. Today for the Credit Card Expert Roundup (Issue 17), Jason Steele asks a group of credit card experts to share their past blunders with credit cards to help others from making the same mistakes:
Could you describe one of the biggest mistakes you made with credit cards, and what you learned from it?
This week's contributors are Lee Huffman, Shawn Coomer, Jason Steele, Holly Johnson, Richard Kerr, and Russ Nauta:
Lee Huffman - Teaches others how to travel more, spend less, & live better at Bald Thoughts
I automate as much as possible so I can focus on my family and my career, but not paying enough attention recently put me in a tough situation. With most credit cards, when you automate the monthly minimum payment, the amount is usually 2-3% of your balance. I always pay my credit cards in full, but like the safety net of having the minimum payment made automatically in case life happens.
Because my American Express Platinum card is a charge card, instead of a small minimum payment, the entire balance must be paid in full each month. One month, I manually paid the $8000 balance and the automatic payment I set up also paid the $8000 balance. Instead of one large payment, now I had two posting to my checking account without enough money to cover both. I had to scramble to move money into my checking account to ensure that they didn't bounce. This situation reminded me to slow down a bit to ensure I understand the effects of my decisions.
Shawn Coomer - Founder and Managing Editor of Miles to Memories
Unlike many other types of accounts, credit cards don’t have a grace period after the due date. This means that you have to pay at least the minimum due (and hopefully the full balance) by the due date or else you get hit with late charges and interest. These charges and interest will quickly offset any rewards earned.
A couple of years ago I mixed up the due date on a card with a large balance that I was planning to pay off in full to avoid interest. Unfortunately since the date passed, my account got hit with a large late fee and tons of interest on that balance. My error was going to cost me hundreds of dollars.
Thankfully, the story doesn’t have a bad ending. Since I had paid only a day late and since I am such a good customer of the bank, they not only refunded the interest, but also the late fee as well. It never hurts to ask for fees/interest to be waived, but don’t expect them to do this too often. Either way, this was a good lesson to learn and one that finally motivated me to change my due dates on many cards to align with each other in order to avoid confusion.
Jason Steele - Credit card expert and founder of CardCon
I can think of a somewhat minor mistake, but one I’m frequently reminded of. Long before I began writing about credit cards, I walked into a home improvement store and became enamoured by this huge set of drill bits, that had over a hundred pieces. These were bits that normally cost about five dollars each, and they were giving it away if you signed up for their credit card. I did, thinking it was the deal of the century only to realize later that this set actually costs just $50. And once I started studying this industry, I quickly realized that there were many credit cards that offered sign-up bonuses worth hundreds of dollars. In fact, it’s sometimes possible to receive over $1,000 in value from the points or miles you get as a sign up bonus.
I now know that it makes sense to hold out for the best possible bonuses, even if it means walking past a complete set of drill bits that can be used for anything. That was 15 years ago, I still have the drill bits and use them regularly. Every time I open my utility closet, I’m reminded of that mistake.
Holly Johnson - Financial expert, award winning author and founder of Club Thrifty
When I was in my early 20’s and in college, I charged several thousand dollars in food and fun on a credit card without a concrete plan to pay it back. I always kept up with my monthly payments, but I was buying things I didn’t need. Looking back, I was mostly spending on clothes, beauty supplies, and nights out with my friends out of boredom. I wasn’t buying anything I had to have; I was just buying whatever I wanted. I paid off my credit card balance fairly quickly once I found a job that paid a decent wage. Still, those payments hurt — a lot. It was especially painful to pay off credit card debt when I felt as if I had nothing to show for it. I racked up some debt with my husband in my mid-twenties as well, so I am far from perfect.
However, I did learn a lot from my careless spending years. I learned that, eventually, you have to get serious about paying off debt if you ever want it to end. I also learned that, if you are more conscious with your spending, you can avoid the pitfalls of debt altogether or at least minimize it. My husband and I have been debt-free for many years now, and we even paid off our home this year. Debt is a curse, and I am convinced of that fact now more than ever.
Richard Kerr - Founder of Award Travel 101
The management of annual fees is something that bit me early on in my award travel quest. There’s a multitude of factors that can confuse the beginner: annual fees waived the first year, pro-rated annual fees, how long after an annual fee posts do you have to cancel a card and not be responsible for it, and requesting retention offers to have annual fees waived or receive benefits which outweigh the annual fee. I ended up missing an annual fee payment on a card I rarely used because of bad organization or waiting too long to cancel a card when the annual fee post several months in the past. I unnecessarily found myself out a few hundred dollars.
I learned quickly that my organizational skills need an up-tick so I could track multiple annual fees and the rules each bank has associated with them. I solidified my excel skills and had my Google Sheets annual fee tracker ready to go in the cloud for easy viewing while on the road and at home. I also had to increase my knowledge and change my mindset to recognize annual fees aren’t necessarily a bad thing. Several cards have annual fees I am gladly pay due to the benefits associated with that card.
Russ Nauta - Owner at Credit Card Reviews
Several years ago, before banking apps were around, I made a phone payment on a business credit card using the wrong bank account which couldn't cover the payment. I realized my error almost immediately and called customer service to try to cancel the payment and switch the account. Unfortunately, there was nothing they could do so I decided to wait until the payment was unsuccessful and then pay it with the correct account. Wrong decision.
What I didn't know was that the credit card company's system would continue to try to make the withdrawal multiple times if denied initially. The ensuing details were quite unpleasant and resulted in hundreds of dollars in overdraft fees, a negative six figure balance in my personal account, and hours of time sitting in my local branch with a customer service trying to explain what happened.
Fortunately, the account I intended to pay the card balance with was with the same bank so they were somewhat sympathetic, but I was stuck paying some of the fees. Needless to say, after that fiasco, I always make sure that I am both paying credit cards with the proper account and that there are sufficient funds to cover the payment.
