Adopting bad credit card habits can result in consumers paying more in interest than what they spent originally on purchases.
A November survey conducted by Bankrate, a New York-based financial data company, found that 65% of consumers who carry a balance on their credit card owe at least as much now as they did over the past decade.
“Credit card debt is very expensive debt and paying it off needs to be a priority,” said Ted Rossman, an analyst for CreditCards.com and Bankrate.com.
Consumers can improve their credit card balances by changing their credit card habits.
Here are 10 credit card habits to leave behind.
10 Credit Card Habits to Leave in the Last Decade
1. You Only Make Minimum Payments
If you have the average credit card debt of $5,700 based on data from the Federal Reserve Bank at the average interest rate of 17.3%, according to CreditCards.com and you only make minimum payments, you’ll be in debt for 234 months, which is almost 20 years, Rossman said.
You’ll end up paying a total of $12,977 ($5,700 principal and $7,277 interest).
“You need to pay a lot more than the minimum to make meaningful progress,” Rossman said.
Using 0% balance-transfer credit cards is a great way to pause the interest clock for up to 21 months.
“Far too many credit card debtors are treading water each month,” he said. “The good news is that they’re generally not falling behind as evidenced by low delinquencies and a strong job market.
2. Chasing Rewards When You’re Carrying a Balance
Credit card rates typically range from 17% to 25%, so it doesn’t make sense to pay those high rates just to earn 1%, 2% or 3% in cash back or travel points, Rossman said.
“You can usually get a good interest rate or good rewards, not both,” he said. “If you’re in debt, getting out of debt quickly and at the lowest possible cost should be your desired reward.”
Prioritize your interest rate, get a 0% balance-transfer card and save hundreds or thousands of dollars in interest.
“Ideally, you’ll avoid putting new purchases on this card and will divide how much you owe by the number of 0% months you qualify for and pay at least that much every month,” Rossman said. “Turbocharge your debt payoff strategy with a side hustle, cutting expenses and/or selling unneeded possessions.”
Overvaluing credit card perks can become a bad habit, said Arica Tomlinson, a supply chain project leader at GE Healthcare in Waukesha, Wisconsin.
“Credit cards that provide a certain percentage of the spend back to the borrower, give them access to lifestyle perks such as airline lounges or generate rewards or points that may be redeemed may incentivize borrowers to engage in spending behavior that is disproportionate to the benefit,” Tomlinson said.
Retailer-based credit cards have the propensity to make buyers feel that by spending more they are earning more even when the returns are marginal.
“Similarly, spending with airline credit cards may give borrowers a feeling of exclusivity, but for the average traveler, the annual fees for these cards far surpass the benefits received,” Tomlinson said.
3. Paying Interest on a Small Revolving Balance to Increase your Credit
Some consumers believe that carrying a small credit card balance from month to month and paying interest on that balance is a way to show credit card issuers that you’re “responsible” and improving your credit over time, said Sara Rathner, a credit cards expert at NerdWallet, a San Francisco-based financial products and services company.
“There is no reason to do this! Paying your credit card bills in full and on time is a great way to increase your credit score over time. The best part is it costs you nothing,” Rathner said.
4. Using a Card That Doesn’t Earn Rewards
If you’re still committed to that no-frills card that earns you no cash back or travel rewards, dump it, Rathner said.
There are so many options out there that pay you back on every purchase.
“If you have credit card debt, focus on paying that down first, but once you’re in the clear, upgrade to a rewards card,” she said. “Otherwise, you’re literally leaving money on the table.”
5. Choosing the Wrong Card for You Just Because It’s Getting a Lot of Attention
Choosing a credit card is a personal decision and there are lots of hidden gems out there that may be a better fit for your needs. Look for a card that rewards you where you spend the most money with terms such as annual fees and interest rates that you can live with, Rathner said.
6. Ignoring the Fine Print
Read your credit card’s terms and conditions because you could be missing out on a goldmine of information.
“Everything you need to know about every feature of your card is in there from how to earn and redeem rewards, what your points are worth and what extra insurance and purchase protection your card offers,” Rathner said. “Before you apply for a card, give the fine print a glance. You’ll have a much better sense of what you’re signing up for.”
7. Not Periodically Evaluating What Cards You Carry
Consumers' habits and needs are constantly changing and evolving. At least once a year you should look in your wallet and make sure the cards you use still match your needs.
If your spending has changed, if you travel more or less than before or have gotten out of credit card debt, it’s time to reevaluate your current cards.
“Just cancel and add new cards carefully, because both activities can temporarily ding your credit score.”
Racking up debt on multiple cards can lead to problems in the future.
Having multiple credit cards that all carry large balances will hurt your credit score, said Corbin Blackwell, a financial planner at Betterment, a New York-based investment company.
“The amount of credit you owe, otherwise known as your utilization ratio should be kept low compared to your credit limit,” Blackwell said. “A good rule of thumb is to keep your utilization ratio around 30%.”
8. Never Calling Your Credit Card Companies
Hesitating to negotiate terms or communicate regularly with creditors can impact your ability to get better interest rates or a late payment eliminated.
Too many people fail to take advantage of the opportunity to negotiate terms with their creditors.
“Anyone with an account in good standing and a healthy credit score should make the most of those circumstances and negotiate for better terms,” said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization. “Successful negotiation can lead to significant savings, but better rates don’t fall out of the sky. You have to ask questions and negotiate based on your understanding of your own financial circumstances.”
9. Using Your Credit Card to Pay for Purchases and Carrying a Balance
Avoid paying for purchases that you cannot pay for in cash.
If you don't have enough cash in your account to buy an item on your credit card, don't buy it, said Daren Blonski, managing principal of Sonoma Wealth Advisors in Sonoma, California.
“Credit cards can be a helpful financial tool but often become financial disasters,” he said. “One needs to be very careful with credit card use because it's easy to spend more than you have in your bank account.”
Betterment's Blackwell says that good credit card discipline means only using your cards for everyday purchases that you’re already planning on making, like gas and groceries and not spending them on things you wouldn’t normally buy, like airline upgrades.
10. Going Too High on Your Credit Utilization Ratio
Using up more than 30% of your total available credit per credit card means you are going over what is considered a good credit utilization ratio. This habit can lower your credit score. Avoid spending so much that you are close to your credit limit. If you only use one credit card to ramp up your points or miles, your credit utilization ratio will rise also.
“Even if you pay your cards on time with the full maximum credit limit being used, you won’t have a great credit score,” said Nora Yousif, a vice president and financial advisor at RBC Wealth Management, a Minneapolis-based financial company.