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00:00You are using your credit card wrong.
00:02And that could potentially be costing you hundreds,
00:04thousands, maybe even tens of thousands of dollars.
00:07And that's why in today's video,
00:08I'm going to reveal the top six mistakes
00:11I see beginners making with credit cards,
00:13all in the hope of helping you avoid them.
00:15And if you're new to the channel, welcome.
00:17My name is John of John's Finance Tips.
00:19I'm the guy who's had well over 50 credit cards
00:21and millions more of miles and points.
00:24One, so that you don't have to,
00:25and two, so that I can teach you everything I know
00:28about the credit card game
00:29so that one day potentially you could be traveling for free
00:31or sitting in the front of the plane.
00:33And in order to do that,
00:35you must avoid these top six common mistakes
00:38I see all beginners make when it comes to credit cards.
00:41The list isn't in any particular order.
00:43However, the last point is the one
00:45that's going to save you hundreds, thousands,
00:47maybe even tens of thousands of dollars.
00:48So be sure to stick around until that.
00:50Mistake number one, carrying a credit card balance.
00:53What exactly does that mean?
00:55So when you get a credit card,
00:56you need to understand that that is borrowed money.
00:58Specifically, it's an unsecured short-term loan.
01:01Meaning at the end of every single statement cycle,
01:04you need to pay back the bank
01:06or you're going to get charged interest.
01:07However, some people get a credit card and they think,
01:10oh, I've got a thousand dollar credit limit.
01:12I'm just going to use some of the money
01:13and I'm not going to pay all of it off.
01:14I'll pay some of it off
01:15and I will carry the balance over onto the next statement cycle.
01:19Thinking that they're just going to pay it off
01:20at a different date.
01:21So they keep kicking the can further and further down the road
01:23by carrying the balance month over month over month.
01:26But some of you might be wondering, why is that a bad thing?
01:28One, credit card interest is absolutely unnecessary.
01:32It's one of those things, unlike an auto loan or home loan,
01:34where most people are going to finance.
01:36Nobody needs credit card interest, AKA nobody needs credit card debt.
01:41And credit card debt slash the interest rates are some of the highest 15, 20, 25%.
01:46That is absolutely insane.
01:49If I came to you and said, hey, I've got an investment opportunity
01:52that can guarantee a 20% return every single year,
01:54you would literally think I was running a Ponzi scheme.
01:57But yet there are folks who are okay
01:59with paying a credit card company 20% interest.
02:01Do not be okay with that.
02:03Because the minute that you start paying a credit card interest,
02:06one, you're paying for my free vacation
02:08and everyone else's free vacation.
02:10Because largely that's how banks make a good chunk of their money
02:12is through folks who are going to carry interest every single month.
02:15And keep in mind, credit card debt is really crippling
02:18because then you might get into a cycle of, okay,
02:20I carry a balance on this card and another card and another card.
02:22And suddenly you've got a bunch of different balances
02:25occurring 15, 20, 25% plus interest.
02:28That's a slippery slope.
02:29Do not go down that path.
02:30If you want to do what we do in this game,
02:32the most important thing is to never carry a balance.
02:36It's to understand that all you're doing with a credit card is
02:39you are borrowing money from the bank
02:41and you're going to pay it in full before the due date.
02:43So you pay no interest on that because that's how you win the game.
02:47The minute you start paying interest,
02:48sadly you've lost.
02:50So what you should do instead, pay in full.
02:53If you can set up automated payments in full so that you just don't forget
02:57and make sure that you're never spending money you don't have.
03:00You have a thousand dollar credit limit.
03:02You better have a thousand dollars in the bank to pay that credit limit.
03:04If you have a $20,000 credit limit, you better have $20,000
03:07if you're going to spend the entire credit limit.
03:09Mistake two, making minimum payment.
03:12What is it?
03:13This is one I see common because it's really easy to fall into this mistake.
03:16You get your new shiny credit card, you've been using it, and the bill comes,
03:19and it just says you can make a statement balance payment, which is a big number,
03:23or you could just make a minimum payment.
03:25And sometimes that's $20, $30, $35.
03:28In the next month, you just make the minimum payment, all the while thinking that,
03:31hey, I'm paying my credit card bill, I should be good.
03:33And that's exactly what the credit card companies want you to think, that you're good.
03:37The truth is though, you're not good.
03:39Here's why it's bad.
03:39It ties very closely to the first point of carrying a balance.
03:42When you only make a minimum payment, you're not paying the entire thing,
03:47which means the rest of that balance is going to be subject to interest.
03:51And remember earlier, we said interest is absolutely crippling on credit cards,
03:55and it's also just unnecessary.
03:57So when you charge off $500 and they say you can make a minimum payment of $35,
04:02don't just make the minimum payment, pay the full amount.
04:05Because if you just make the minimum payment, you're going to pay interest,
04:08and suddenly you're going to end up in credit card debt.
04:10You end up in credit card debt, you're paying for my free vacations.
04:13Don't pay for my free vacations, pay for your own.
04:15To avoid this, do this instead.
04:17Set up an automated payment, and instead of clicking make minimum payment,
04:21make sure you're paying the full statement balance.
04:24My overall tip for anything payment related is try to automate as much of it as possible,
04:28but also be sure to only spend what you have.
04:32I always see people fall into the trap of telling their friends
04:35that they've got a $30,000 credit limit.
04:37But that doesn't really mean anything.
04:38It just means that the bank thinks that you're worth it for $30,000.
04:42Should you just spend 30?
04:44No, if you need to, sure, but you shouldn't just say,
04:47okay, I've got 10, I've got 20, I've got $30,000 credit limit,
04:49I'm going to spend that amount.
04:50Because that is the quickest way to land yourself in credit card debt.
04:53And the minute you're in credit card debt, that is a slippery slope down.
04:56So avoid that at all costs, folks.
04:58Automate your payments and make sure you're paying
05:00the full statement balance every single month.
05:04Mistake number three, using your credit limit.
05:06I know, you're probably thinking, dude, I just got a credit card.
05:09I can't even use it.
05:11Okay, more specifically, using a lot of your available credit limit.
05:15So what exactly does this mean?
05:16Let's say you get that new credit card, $1,000 credit limit.
05:19You swipe $1,000 on it.
05:21You have every intention of paying that thing off on the due date.
05:24And so the due date comes and you pay it off.
05:26But between the day that you swiped it and when you paid it off,
05:28your credit score actually suffered because you had 100% utilization.
05:33Let's quickly level set to understand why that's important.
05:35Your credit score has five key components.
05:37Component number two, which is very important,
05:39it accounts for 30% of your credit score.
05:41And that is your credit utilization.
05:43How much of your available credit are you using relative to how much credit you have?
05:48So if you have a $1,000 credit limit and you use $1,000 of it,
05:51that is a 100% utilization.
05:54In the world of credit cards, banks and other lenders like to see utilization of under 30%.
05:59Because the more credit you use, the risky you are.
06:02I don't think that's the case, but they think that's the case.
06:04And so the riskier you are, they're just going to ding your credit score.
06:09So what should you do instead?
06:11One, be aware of when exactly your statement close date is.
06:14I have a full video on it up here.
06:15I can link, but the TLDR is when you use a credit card,
06:19let's say on day one, you swipe $1,000.
06:21Day 28 or 30, your statement cycle closes,
06:24but your due date is not for another 20 to 30 days after the statement cycle close date.
06:29But the statement cycle close date is the date that the bank is going to send to the credit bureaus,
06:34how much of your credit you're using.
06:35So even though you're using a hundred percent of it,
06:37and even though you have intentions of paying it all off for a period of 20 to 30 days,
06:41all the other lenders see is, wow, you're using all of your credit.
06:44That is like red alarm flags.
06:46That is bad.
06:46Ding your credit score.
06:48So be cautious of when your statement close date is and try to pay off before that.
06:52Point number two, just because you have a thousand dollar credit limit,
06:54just because you have a $10,000 credit limit, do not use all of it.
06:58Because the more you use, the more it's going to hurt your credit score.
07:02You're probably also thinking,
07:04I just got my first credit card and there's a $200 credit limit.
07:07That's it.
07:07That's exactly what it is.
07:08There's a $200 credit limit.
07:09Try to either use it and pay it off immediately or minimize how much you're using in totality,
07:13because the name of the game is get your first card, get your second, get your third.
07:17Even though your credit limit might be really small upfront, that's fine.
07:21At some point, you're going to be able to upgrade.
07:23Don't get too frustrated with this, but also just understand exactly
07:26how using a high credit limit can negatively impact your credit score.
07:30And my recommendation, don't use as much of the credit limit
07:32or pay off as much of it before the statement close date as possible.
07:36Mistake number four, getting a cash advance.
07:38What is it?
07:39It's basically borrowing money from your credit card.
07:41You're getting cash out of your credit card.
07:44Folks, credit card is not a debit card.
07:47Even though you should be using a debit card in that you turn off and pay it off,
07:50do not pull cash from your credit card.
07:53That interest rate will eat you alive.
07:56A cash advance should never be used unless it's an emergency of all emergencies.
08:01And you absolutely needed cash.
08:03There is no situation in your day-to-day life in which you should be taking a cash advance
08:08from your credit card.
08:10So how do you avoid it?
08:11Don't do it.
08:12There is no alternative to a cash advance.
08:15If you do not have the cash and it's not an emergency, you should not be spending for
08:20whatever the item or service is.
08:22Mistake number five, not using your credit card.
08:26This one is one I see a little later in people's credit histories where they have had old credit
08:31cards.
08:31They have forgotten about them or maybe their oldest credit card ever and they've forgotten
08:35about them and they're not using it.
08:36The reason this is an issue is one, you're showing zero utilization.
08:41And when you show a bank that you're not utilizing your credit card, that actually doesn't help
08:45you.
08:45It doesn't hurt you, but it's not really helping you because well, how do we know if
08:48you're responsible if you never use the card?
08:50And the second one is if you don't use a credit card for long enough, they will just close it.
08:54And when they close it and it fits your oldest card that can actually impact your credit score
08:58from a length of credit history perspective.
09:00Length of credit history accounts for 15% of your overall credit score.
09:04So I recommend you do this instead.
09:06Old cards that you don't really use day-to-day because it's not driving value,
09:10take them and use them as like a $1 load to Amazon every month.
09:13So you just take it, automatic load $1 or $2 onto an Amazon account because sadly,
09:18I'm sure you'll spend more than that every single month on Amazon so that that card is used
09:22month over month.
09:23In addition to that, set up an auto payment so that every single month that that full
09:28statement is paid.
09:29So that's fully automated.
09:30That card is going to sit there and help boost your credit score.
09:33And you don't have to think about it because you don't want to end up in a situation that
09:36I ended up in for one of my old cards.
09:37I just forgot about it, completely forgot about it.
09:39And that suddenly I get a notice from captain one saying, Hey, we're going to close your
09:42old card.
09:43If you don't do anything soon, luckily I went back in there, swiped it.
09:46We're good to go.
09:46But keep in mind folks, when you get a credit card, you still need to use it and make sure
09:51that you don't have 0% utilization, have the utilization at one or 2%.
09:55And I do want to clarify when I say one or 2% utilization, I do not mean carry a balance.
09:59I mean, at that statement, close date, have some utilization, but before the due date,
10:04pay the entire thing off.
10:06All right.
10:07So statement, close date, leave a little bit of a balance due date and higher thing is paid off.
10:12Mistake number six.
10:14And this is one that could potentially be costing you a hundred thousand,
10:17maybe even tens of thousands of dollars.
10:19And that is using the wrong type of credit card.
10:22And this is something I see happen time and time again.
10:25The first example is somebody who is just out of high school or just out of college.
10:29They have a checking account and the bank says, Hey, you've got a checking account with us.
10:32Why do you open a credit card? And they open a credit card and they think that's it.
10:35I'm good. I've got a credit card on with my life.
10:38Not exactly.
10:38The second type of folks I see happening are people who are going out shopping
10:41and the sales associates like, Hey, why don't you get a credit card?
10:44We'll take off 10% like, Oh great.
10:46A credit card, open a credit card.
10:47And that's the one they use.
10:48And they never think about it again.
10:50That's not the most effective way to do it.
10:52And the third type are people who are just seeing that their friends are getting credit cards.
10:55And so they just jump on one because everyone's getting one
10:58and they don't really think why exactly they're getting it.
11:00They just know everyone else is getting it.
11:02And again, that is also a very ineffective way to do it.
11:06The reason all of those situations are bad is that you're not being intentional
11:10with how you are getting a credit card.
11:12My core teaching on this channel is a credit card is just another tool
11:16in your financial tool belt.
11:17And it's only as good as your ability to use it.
11:20Now you don't have to do what I do, which is booking trips out 10 months in advance
11:25of transferring to the most optimal partner to fly for a $10,000 business class ticket for free.
11:31You can, but you don't have to.
11:32In fact, you could just get a credit card.
11:34Let's say in the next three months, you know, you're going to spend 500 bucks.
11:37Well, why not save $200?
11:39And if you know that most beginner entry-level credit cards are going to offer a $200 cash
11:44back bonus after spending 500 bucks, then there you go.
11:46You optimize for that spend using a signup bonus.
11:49Now let's say that, you know, you spend a lot of money on rent every single year,
11:53a thousand bucks, $2,000, $5,000.
11:56Why don't you instead get a credit card that lets you earn points for rent and cover transaction fee,
12:01build MasterCard.
12:02Or let's say, you know, you spend a ton of money at gas and grocery stores.
12:06Why not get a card that gives you 5% cash back for your highest spend category every single month,
12:11be it gas or grocery, city custom cash, no annual fee.
12:14So my core lesson with the right credit card is you need to be very, very intentional with it.
12:19For example, when I first got into credit cards, I desperately wanted to fly first class.
12:24I thought it was the coolest thing, but specifically I wanted to do it for free.
12:27So I was able to get a Bank of America Alaska Airlines credit card to earn Alaska Airlines miles.
12:33I was able to then take 70,000 Alaska Airlines miles and book for a Cafe Pacific first class flight
12:38that would have cost $20,000, but I paid less than $57 for.
12:42In no world should I have ever gotten a Bank of America Alaska Airlines credit card.
12:47I don't bank with Bank of America and I do not fly Alaska Airlines.
12:50But I had this strategy laid out of if I want to book for this particular flight,
12:54these are the type of points I need.
12:56Now you can find videos all over my channel talking about different ways to use credit cards,
13:00my favorite cards and all of that.
13:01But my core lesson here is be intentional with the credit card you are using.
13:06My second point is don't get attached to your credit card.
13:08Just because you have a card for this or card for that,
13:10it doesn't mean that it's the best card for that particular situation.
13:13And when a better offer comes along, do not be afraid to jump ship.
13:17Right now, one of my favorite card offers is from the Capital One Venture X.
13:20It's a premium travel card,
13:22competes with Chase Sapphire Reserve, competes with American Express Platinum.
13:24Love the card.
13:25It also pays you five bucks effectively for having the card.
13:27This is my number one recommended card because of that offer.
13:30Now, the minute, the day that that no longer exists,
13:33I'm going to take a step back and reevaluate.
13:35Am I going to continue recommending that card?
13:36Am I going to continue holding on to that card?
13:38But my point is do not get so attached to a particular card for any reason other than
13:43there is value here.
13:44The minute there is no value for you, you got to move on.
13:47I see too many people with store credit cards because, well, I got it.
13:50It's convenient.
13:51It's a credit card.
13:51No, that is not the way you should be thinking about it.
13:54It is okay.
13:54I got the store credit card to save money, even though I don't think that's the best way.
13:57But let's say you did in a couple of months.
13:58If you're not continuing to get benefit from the store card, close it, move on to another one.
14:03Folks, this has been an incredible video.
14:05Hopefully this has been helpful.
14:06Let me know in the comment section down below if there are any other mistakes that
14:09I should have addressed.
14:10And if you have any comments, questions, and if you'd like to support the channel,
14:12feel free to check out my affiliate links for all my top card offers.
14:15Link in bio as well.
14:16And I'll catch you all next week.
14:18Peace.
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