Is your credit card a freeloader?

Remember getting your first credit card offer?

You probably felt incredible!

After all, someone was saying that not only were you a full-fledged grown-up, you were trustworthy enough to get a credit card.

Now you could build credit, take out a loan for a car, maybe even buy a house someday.

Most of us were taught how to use a credit card. Few of us were taught how to manage one.

Credit card fees and interest add up quickly. The ease of paying tempts you to spend more. Now the day you get your statement might be the most dreaded day of the month.

Credit cards can be a valuable tool . . . as long as they’re working for you and not against you.

Give your credit card a job.

Most of us choose a credit card for rewards. 2% cash back. Airline miles. Hotel points. Subscriptions.

Sounds great . . . if you actually use those rewards. And if the numbers actually work.

Let’s see if the math is mathing.

As an example, let’s take the average credit card charging around 22% interest. According to credit reporting services, Americans who don’t pay their credit cards in full every month carry a balance in the range of $6,800 - $7,500. At 22% interest, that means you’re handing your credit card company roughly $1,500 a year in interest.

Just to break even on that 2% “reward”, you’d have to charge more than $75,000 per year on your credit card.

YIKES!

Keep in mind that doesn’t count the “convenience” fees many merchants charge – including government agencies like Washington State Ferries.

If you pay charges in full every single month, then your credit card might be doing its job. Depends on if the annual fees are covered by your rewards.

Also, research consistently shows people spend 12%-18% more on average when they use plastic or other forms of easy pay rather than cash. That’s before tacking on the interest charges, annual fees and merchant processing.

We’ll dive deeper into cash vs. easy payment options in the future. For now, make sure your credit card is building your wealth rather than your financial institution’s.

That’s the job of your credit card: helping you build your wealth. Don’t let it be a freeloader.

Ready to go deeper? Registration is open for Budget YOU!’s four-webinar series that shows you how to be the boss of your bucks. Reserve your spot: Events | Budget You