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3 things to never do with a credit card

IntermediateAmerican accentAnimated lesson6 min

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Transcript: 48 sentences

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  1. 0:07 For over four decades, Walter Cavanagh held a truly credit-worthy record: the most credit cards held by one person.
  2. 0:16 What began as a bet between friends led him to open over 1,400 cards, ranging from traditional bank-issued
  3. 0:26 to those from airlines, gas stations, and even ice cream shops.
  4. 0:31 Most people have far fewer credit cards.
  5. 0:34 While useful for secure purchasing, handling emergencies, and building credit scores, credit cards can make it difficult to avoid overspending.
  6. 0:45 Globally, the outstanding credit card debt exceeds trillions of dollars.
  7. 0:50 And this is no accident.
  8. 0:52 Credit card companies intentionally design these systems to encourage spending and lock you into a cycle of interest and fees.
  9. 1:02 So, how can you avoid their most common traps?
  10. 1:06 It starts with card selection.
  11. 1:09 Lenders often aggressively advertise perks like cash back, travel miles, and discounts.
  12. 1:16 But these offers only seem generous.
  13. 1:19 In reality, only a small portion of cardholders actually benefit - those who pay off their entire balance every month.
  14. 1:28 But according to one survey, 46% of American cardholders carry a revolving balance.
  15. 1:36 For these users, the cost of interest and fees almost always exceeds the value of rewards.
  16. 1:43 If you think you may fall into this category, financial experts recommend getting a card with the lowest annual percentage rate, or APR.
  17. 1:55 This number is essentially the cost of borrowing money from the credit card company.
  18. 2:00 You pay that cost through interest charges, which kick in as soon as you carry any balance past a statement due date.
  19. 2:10 While APRs are listed as yearly rates, for most cards, interest accrues daily.
  20. 2:16 For example, a card with a 35% APR charges about 0.095% interest per day.
  21. 2:25 So a revolving balance of $1,000 would accumulate approximately $29 in interest over a month.
  22. 2:34 Meanwhile, a card with a lower APR, say 18%, would charge about $15 in interest during the same period.
  23. 2:44 This difference can add up over time.
  24. 2:46 If you were to make a $50 monthly payment towards that $1,000 balance, the card with the higher APR would take an extra $325
  25. 2:58 and an extra seven months to pay off.
  26. 3:02 And interest fees can be even more complicated.
  27. 3:05 If you carry a balance and actively use a card, new purchases start accruing interest immediately, even if you pay off those purchases before the statement date.
  28. 3:17 In other words, once you start to carry a balance, it’s much more difficult to avoid interest charges going forward.
  29. 3:25 And even after a bill is fully paid, you might still get one more charge, something called residual interest,
  30. 3:34 for the days between your statement and payment date.
  31. 3:39 Low APR cards are the best option for minimizing these interest charges; however, be wary of cards that offer exceptionally low APR
  32. 3:50 for an introductory period.
  33. 3:52 These flashy offers can mask things like complicated fee structures, steep late charges,
  34. 3:59 and high default APRs that kick in once the introductory period ends.
  35. 4:05 While many countries require companies to disclose these conditions, they're often buried in the fine print.
  36. 4:13 Payment structures can also be confusing.
  37. 4:16 For example, many people mistake the minimum payment as the standard or even recommended amount to pay.
  38. 4:23 In reality, it typically only covers interest, fees, and a small percentage of the balance.
  39. 4:29 As a result, sticking to just the minimum payment can make even a low balance of $1,000 take over 18 years to pay off.
  40. 4:40 Paying the full card balance each month is the best way to avoid fees and actually benefit from rewards.
  41. 4:47 But it's not always possible.
  42. 4:49 So what should you do if you find yourself in credit card debt?
  43. 4:54 The first step is to assess your finances and create a repayment plan.
  44. 4:59 If the debt is on a high APR card, transferring your balance to a lower APR card may help.
  45. 5:06 Just be sure to check for balance transfer fees.
  46. 5:10 If you’re juggling debt on multiple cards, it may be tempting to pay off the lowest balance first.
  47. 5:17 However, the most financially efficient strategy will always be to put any extra money towards the card with the highest APR, regardless of balance.
  48. 5:29 The key is to chip away one card at a time - just don’t be like Walter and open a thousand more in the meantime.

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