Credit Archives | Page 85 of 88

Jul

2022

Credit Card Miles vs. Cash Back: Guide to Choosing Between Cash Back and Travel Rewards

By Austin Kilham | Credit, Family Finances, money | Comments Off

Credit cards often offer rewards to incentivize you to apply for a credit card and use it. Cash back cards and miles cards are two common types of rewards cards. The former gives you cash rewards, while the latter offers miles or points that you can use toward a purchase.

Both types of rewards can end up being quite valuable for cardholders. But how do you decide whether you want to earn miles vs. cash back? Here’s a look at cash back vs. travel rewards cards to help you decide which is right for you.

What Are Points and Miles Credit Cards?

Points and miles credit cards are technically two types of rewards cards, a broader category within what a credit card is. Points cards give you points that you can redeem for things like travel, merchandise, or cash back to reward you for your spending. Generally, a point is worth about $0.01, though that varies by card and, in some cases, what you choose to use your points for. For example, you might earn more points for travel than you do when you redeem your points for gift cards.

Miles cards usually offer airline miles associated with an airline’s frequent flyer program. You can earn them by using a credit card that’s co-branded with a specific airline, or a card that’s a more general travel card. With co-branded cards, you can redeem miles with that airline or their partner airlines. Cards that aren’t co-branded may allow you to use your miles with various airlines.

As with points, airline miles are typically worth about $0.01, though the value of each mile might differ depending on when you book your travel and what type of seat you purchase.

Pros and Cons of Points and Miles Credit Cards

Before signing up for a miles or points card, it’s important to consider the advantages and disadvantages.

On the one hand, points and miles cards both offer travel-related perks, though miles cards may only offer travel through specific airlines. Cards may also come with bonuses to help incentivize you to apply for a credit card.

However, miles and points cards may charge a hefty annual fee that helps the credit card company offset the cost of providing the rewards program. With co-branded cards, you typically cannot transfer miles to other airlines. Additionally, the value of your miles may vary according to a variety of factors, such as the date you choose to travel or the seat you want to sit in.

Recommended: What is a Charge Card

Pros of Points and Miles Credit Cards	Cons of Points and Miles Credit Cards
Reduce the cost of travel.	Can’t transfer miles to another airline loyalty program.
Provide travel-related perks.	Value of points and miles may vary.
May come with a sign-up bonus.	Points and miles cards may charge large annual fees.

What Are Cash Back Credit Cards?

Cash back credit cards offer you cash as a reward for making purchases with the card. For example, your card might offer you up to 3% cash back on all purchases, which means that for every $100 you spend, you’ll receive $2. Cash back cards usually let you redeem your rewards for cash via statement credit, bank transfer, or check.

Cash back cards can be flat-rate cards, meaning you’ll earn a fixed percentage on every purchase. Or, they worked based on a tiered system. For example, some cards will offer you higher rewards for certain purchases, like travel, groceries, or gas. In some cases, cards may have rotating rewards categories that change every few months.

Related: Enjoying Credit Card Bonuses

Pros and Cons of Cash Back Credit Cards

When you consider a cash back card, again consider potential disadvantages in addition to benefits.
On the plus side, cash back cards typically don’t come with steep annual fees. You can redeem your rewards for cash that you can use for any purpose, and the amount you earn is fixed — the value or your reward doesn’t vary by date or other factors as it might with a miles card.

On the other hand, the amount of cash you can earn may be limited, and these cards may not offer many other perks. Cash back cards also typically don’t come with credit card sign-up bonuses that are as big as those offered by miles and points cards, marking another difference between cash back vs. miles cards.

Pros of Cash Back Credit Cards	Cons of Cash Back Credit Cards
Usually have no annual fees.	May offer lower sign-up bonuses.
Rewards can be redeemed for cash.	Cash back cards may offer fewer perks.
The value of your reward is fixed.	The amount you can earn may be limited.

Similarities Between Cash Back and Points and Miles Credit Cards

Both cash back and points or miles cards offer you rewards based on your spending, and they may offer higher rewards for spending in certain categories. Be aware that some rewards have expiration dates, as well.

Rewards cards often carry higher-than-average interest rates. As a result, you’ll want to make sure that you will be able to pay off your credit card bill on-time and in full when you use your card, given how credit cards work when it comes to interest.

Recommended: What is the Average Credit Card Limit

Differences Between Cash Back and Points and Miles Credit Cards

The main difference between a cash back credit card vs. miles and points card is how you redeem your rewards. With cash back cards, you received a percentage of your spending, sometimes limited to a maximum amount. You earn points and miles in a similar way. However, their value may change and you may be limited in where you can redeem them.

If you have a co-branded miles card for example, you may only be able to use your miles with that airline. Cards that aren’t co-branded may offer you the chance to redeem points and miles with a variety of companies, such as airlines and hotel brands.

Similarities Between Cash Back and Points and Miles Credit Cards	Differences Between Cash Back and Points and Miles Credit Cards
Offer rewards based on spending.	Cash back card rewards are redeemed for cash.
May offer greater rewards for spending in certain categories.	Points and miles allow you to redeem rewards toward purchases.
Typically has a higher interest rate.	Points and miles cards may limit where you can redeem your rewards.

Recommended: How to Avoid Interest On a Credit Card

Is It Better to Get Cash Back or Miles?

Whether or not you choose a cash back card vs. a miles or points card will depend on how much you travel. Travel cards tend to offer better value when you redeem points and miles for travel-related rewards. So if you’re a big traveler, one of these cards may be right for you. However, if you’re more of a homebody, a cash back rewards program may be a better fit.

Other Credit Card Rewards

Cash back or travel rewards isn’t your only choice. There are a variety of other credit card rewards programs you may encounter.

Gas Rewards

Gas cards are typically co-branded with certain gas vendors. Users usually earn points and discounts only on gas purchases. In general, gas cards have relatively high rates of return and don’t charge an annual fee.

Retail Credit Cards

Credit cards that are co-branded with major retail outlets will often offer discounts at that outlet. Rewards might be applied at the point of sale or as regular statement credits.

The Takeaway

Understanding how credit cards allow you to redeem rewards — and how useful those rewards are — is key to deciding which card is right for you. If you’re a world traveler, a miles card might fit the bill. And if you don’t fly frequently, you may be better served by earning cash back on purchases you make in your day-to-day life.

Shop around for the credit card that best suits your needs. A credit card from SoFi offers 2% unlimited cash back rewards and charges no foreign transaction fee. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1

FAQ

What is the difference between cash back and miles?

Cash back cards allow you to earn back a percentage of the purchases you make. Miles cards allow you to earn miles based on the purchases you make, which you often must use toward airline travel.

Is cash back really worth it?

Cash back rewards can allow you to earn some money back from your everyday spending. However, you’ll want to make sure you can pay off your balance in full each month, as rewards cards that offer cash back tend to have higher interest rates than non-rewards credit cards.

Can you convert miles to cash?

Some cards allow you to convert miles to cash, but users will get the most value from redeeming miles for travel. You can find out whether your card allows you to convert miles to cash by calling your credit card issuer. Find their number on the back of your credit card.

Do cash back or credit card miles have higher interest rates?

Both cash back and travel rewards credit cards tend to have higher interest rates as they’re types of rewards credit cards. In general, rewards credit cards usually have higher interest rates than no-frills cards that don’t offer rewards.

Photo credit: iStock/franckreporter

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points toward active SoFi accounts, including but not limited to, your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, Student Loan Refinance, or toward SoFi Travel purchases, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Jul

2022

18 Surprising Findings About Cash-Back Credit Card Users

By Brandon Ruse | Credit | Comments Off

How much cash back are people actually getting from their credit cards? Who charges the most money to their card, boomers or Gen Z? Does having a credit card mean you’re more likely to have good credit compared to someone who doesn’t?

These questions, and many more, are what we set out to answer in our study on cash-back credit card users*.

We surveyed a total of 1,205 people—802 who use cash-back credit cards to pay for most expenses and 403 who primarily use a debit card, cash, or money app (such as Venmo). By analyzing and comparing the two groups, we were able to learn more about how preferred payment methods can affect spending and budgeting habits.

Read on for the 18 most interesting findings from our research.

Notes: Percentages are rounded to the nearest whole number, so some data sets may not add up to 100%.

*We focused on cash-back rewards because they are the most popular type of credit card perk.

1. $50 was the median amount people made in cash-back rewards in a month.

Monthly Cash-Out for Credit Card Rewards

Our study found that $50 was the median amount people earned in cash-back rewards in a month.

But certain age groups may be more savvy about racking up their rewards than others.

The median cash-back amount by generation was:

• Boomers: $20

• Gen X: $40

• Millennials: $50

• Gen Z: $59.50

Because boomers are likely to have higher earnings and more savings than the other age groups, they may be less concerned about maxing out their cash-back rewards. And Gen Z respondents, who may have smaller salaries and bank accounts, might have learned to be savvy with their cash-back rewards card out of financial necessity.

2. Three-quarters of cash-back credit card users save up their rewards over time.

Save up rewards or cash out

75% of all cash-back credit card users prefer to save their rewards versus cashing them out every month.

Respondents may have long-term goals in mind for their cash-back credit card. By accruing the cash they can use it for a larger purchase.

3. A majority of cash-back credit card users have “Very Good” or “Excellent” credit.

How People's Credit Scores Differ Based on Payment Method

Our study found that a majority (58%) of cash-back credit card users have “very good” or “excellent” credit (meaning a score of 740 or above).

In fact, people who use a cash-back credit card are more than twice as likely to have “excellent” credit (a score of 800-850) compared to those who used a debit card, cash, or money-transfer app to make most of their purchases (23% vs. 9%).

Debit, cash, and money app users were five times more likely to have “poor” credit (a score of 579 or below) than cash-back rewards cardholders (15% vs. 3%).

Breaking down the data by age we discovered:

• 71% of boomers who use cash-back credit cards have “very good” or “excellent” credit.

• 55% of Gen Xers who use cash-back credit cards have “very good” or “excellent” credit.

• 53% of millennials who use cash-back credit cards have “very good” or “excellent” credit.

• 48% of Gen Zers who use cash-back credit cards have “very good” or “excellent” credit.

Older credit card users may have better credit because they’ve had more time to build their credit history.

4. The amount of money spent by cash-back credit card users in a month was 67% greater than the amount spent by debit, cash, and money app users.

The difference is significant: Our study found that the money cash-back credit card users spent in a month was 67% more than the amount of money that debit, cash, and money app users spent.

The median spending amount for:

• Cash-back credit card users was $1,000.

• Debit card, cash, and money app users was $600.

Cash-back credit cardholders may feel incentivized to spend money since they know they’ll earn rewards on their purchases. Credit cards also allow for greater financial flexibility compared to debit cards.

Consider this: If the group who primarily uses a debit card, cash, or money app were to use a 2% cash-back credit card, they could potentially earn an extra $144 in a year (2% x $600/month x12 months = $144). If they were to use a 3% cash-back credit card, they would potentially pocket over $200 in a year, just in rewards (3% x $600/month x 12 months = $216).

5. Gen Zers are the most conservative credit card spenders compared to other age groups.

How much did people spend in a month?

Surprisingly, Gen Zers are the most frugal credit card spenders compared to all other age groups.

The median spending amount for Gen Z cash-back credit card holders was half that of Gen Xers and millennials.

Cash-back cards spending by generation:

• Boomers: $700

• Gen X: $1,000

• Millennials: $1,000

• Gen Z: $500

Gen Xers and millennials spent the most ($1,000), which could be because these groups are more likely to have growing families and more expenses. Gen Zers spent $500; contributing factors could be lower credit limits, financial support from their parents, and fewer financial obligations.

6. More than half of respondents use their card to pay for mortgage, rent, and/or utilities.

What age groups are most likely to pay for housing expenses with a credit card?

More than half of people who regularly use a cash-back credit card (57%) used it to pay for their mortgage, rent, and/or utilities in March 2022. With living expenses on the rise, and the potential to earn considerable points, it makes sense that people would put these bills on their cash-back card.

There are some gender and age differences. We discovered that 65% of men used their cash-back card to pay for mortgage, rent, and/or utilities, compared to 47% of women. Millennials and Gen Zers were the age groups most likely to put these expenses on their credit card, and Boomers were the least likely.

Percentage of cash-back credit card users who paid for mortgage, rent, and/or utilities with their card:

• Boomers: 41%

• Gen X: 49%

• Millennials: 64%

• Gen Z: 62%

7. More than one in 10 respondents spent over $500 on gas in March alone.

According to our study, 12% of cash-back credit card users spent over $500 on gas in the month of March. That means the amount of money these respondents spent on gas was more than the average monthly car payment for a used vehicle ($488).

Method of payment didn’t affect how much respondents spent on gas overall. We found that 10% of debit card, cash, and money app users spent over $500 on gas. The big difference: These consumers were not able to earn cash back on their petrol purchases the way cash-back credit card users were.

8. Debit card, cash, and money app users may have a harder time saving compared to credit card users.

How Do Monthly Savings Differ Depending on Preferred Payment Method?

Over the course of a month, we found that:

• 33% of debit card, cash, and money app users were not able to put any money into savings.

• 15% of cash-back credit card users were not able to put anything into savings.

This means debit card, cash, and money app users are more than twice as likely to be unable to contribute to their savings compared to cash-back credit card users.

Looking at respondents who put at least $100 into savings in a month, we discovered that 72% of cash-back credit card users were able to do so, compared to 52% of debit card, cash, and money app users.

9. Millennials may be the best savers of all the age groups.

Based on the results of our survey, millennials were the star savers. The median amount they put into savings monthly was $300.

Gen X and Gen Z save $250 and $287 monthly, respectively.

Boomers had the lowest median monthly savings amount at $100. One possible reason: Since they likely have some savings built up, they may not need to contribute as much to their nest egg as the younger generations.

10. People in relationships were able to save three times as much as single people.

Relationship savings

Being in a relationship may lead to fiscal stability. According to our survey, respondents who were married or living with a partner were able to save three times as much as those who were single, widowed, or divorced.

The monthly median savings amount for people who are:

• Married or living with a partner was $300.

• Single, widowed, or divorced was $100.

Those who are married or living with a partner had a median monthly spending amount of $1,000—meaning they save $0.30 for every $1 they spend. Those who are single, widowed, or divorced had a monthly median spending amount of $800, so they save about $0.13 for every $1 they spend.

11. Men are twice as likely to spoil their pets compared to women.

Men spoil their pets more than women

Dogs really are man’s best friend: Men are more than twice as likely as women to spend a significant sum on their pets.

Overall, 9% of all cash-back credit card users spent over $500 on their pet in a month.

Breaking down the numbers, we found that:

• 12% of men spent over $500 on their pets in a month.

• 6% of women spent over $500 on their pets in a month.

Money can’t buy love, but it can buy toys and treats.

12. More than one in 10 people spent over $500 on restaurants in a month.

Our survey found that 14% of cash-back credit card users spent over $500 on restaurants and bars. More specifically, 17% of men spent over $500 in a month versus 10% of women.

Millennials are 9x more likely to spend on restaurants than boomers

Millennials are most likely to spend a lot of money on restaurants and bars. This age group had nine times the percentage of respondents who spent over $500 compared to boomers.

Respondents who spent over $500 on restaurants in a month by generation:

• Boomers – 2%

• Gen X – 12%

• Millennials – 18%

• Gen Z – 13%

Debit card, cash, and money app users were not far behind—12% of these consumers spent over $500 on restaurants in a month. If they used a rotating rewards card that offered 5% back on dining instead, they would potentially earn $25 in rewards in a month, or $300 a year!

13. Gen Z spent the most on clothes and shoes.

Which age group is the most likely to spend the most on clothing?

According to our survey, 20% of Gen Zers spent over $500 in a month on outfits and shoes.

To put it into perspective, here’s the percentage of cash-back credit card users in different age groups who spent over $500 on clothing and shoes in a month:

• Boomers: 4%

• Gen X: 10%

• Millennials:18%

• Gen Z: 20%

Boomers are the most frugal when it comes to new clothes. More than one-third spent $0 on clothing and shoes in a month.

Percentage of cash-back credit card users who spent nothing on clothing and shoes in a month:

• Boomers: 35%

• Gen X: 22%

• Millennials: 16%

• Gen Z: 11%

14. Gas was the most regretted purchase for all respondents, regardless of payment method.

Purchases that brought people the most joy and regret

When asked what purchase respondents regretted most, gas rose to the top, regardless of payment method.

Here are a few other notable answers we received for most regrettable purchase:

• A puppy my son said he would take care of and didn’t

• A plane ticket and then forgetting what day the flight was

• A ticket to a bad movie

• I got scammed trying to buy an NFT

• Crypto futures

• A book shelf that fell apart two days after I put it together

• A $1,000 pair of shoes

• The wrong kind of ice cream

• A gym membership I didn’t use

15. Groceries and food purchases bring people the most joy.

When we asked cash-back credit card users what purchase brought them the most joy, we expected answers like vacations or special clothing. Instead, food and groceries were the most common responses.

We also discovered that people were happiest with purchases that involved a family member or pet, as illustrated by these responses:

• Birthday present for my mom

• Dinner with the wife for date night

• My dog getting her tooth/mouth fixed as she wasn’t in pain any longer

• A new bike for my daughter

• Dog’s birthday gifts

• My wedding dress

• Gifts for my grandchildren

• Catnip and wet food

• Lunch for my dad on his birthday

• A video game that me and my daughter play

• Taking care of my dog at the emergency vet because her life was saved

• Anniversary vacation with my wife

• My heart surgery

16. Men are more than twice as likely to spend over $500 on entertainment compared to women.

In one month, 15% of men who use cash-back credit cards spent over $500 on entertainment* compared to just 6% of women.

Of those men:

• 21% used a rotating-reward cash-back credit card.

• 11% used a flat-rate cash-back credit card.

That means men who have a rotating rewards cash-back card are almost twice as likely to spend over $500 on entertainment compared to men who use a flat-rate cash-back credit card.

*”Entertainment” was defined as “sports, concerts, etc.”

17. Millennials were the biggest travelers, but Gen Z isn’t far behind.

Which age group spent the most on travel?

Traveling can be an amazing experience, and being able to do so now is a sign that life is returning to normal. So who is going places? Looking at travel expenditures by age group, we found millennials to be the biggest travelers, with Gen Z right behind them.

Percentage of cash-back card users who spent over $500 on travel in a month:

• Boomers: 5%

• Gen X: 15%

• Millennials: 21%

• Gen Z: 18%

These numbers may speak to a greater travel trend, which predicts that Gen Z will overtake millennials in travel spending this year. According to Travel Pulse, 72% of Gen Zers are planning to splurge on a vacation in 2022, while 68% or millennials plan to do the same.

18. Men are more likely to spend a lot of money on home decor compared to women.

In our study, we found that 16% of all men who have cash-back credit cards spent over $500 on home-related expenses (furniture, decor, repairs), compared to 10% of women.

Of these men, 13% were single, divorced, or widowed, and 16% were married. Looking at the women who spent over $500 using their cash-back rewards card, 10% were married and lived with their partner, and 9% were single, divorced, or widowed.

The Takeaway

Our survey found that payment method, gender, and age can all affect a person’s spending and savings. For instance, men tend to spend more on their pets and home furnishings than women. Gen Zers accrue the most credit card rewards; boomers the least. And the majority of cash-back credit card users have “very good” or “excellent” credit scores.

In addition, cash-back credit card users are more likely to be able to put money into savings compared to people who use a debit card, cash, or money app to pay for most of their purchases. Perhaps the money they get in rewards goes into their nest egg.

New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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May

2022

Is It a Good Idea or Not to Get a Credit Card?

Should I Get a Credit Card? When to Consider Applying for a Credit Card

By Anna Davies | Budgeting & Goals, Credit, Financial Independence | Comments Off

To be or not to be: Hamlet’s existential question may well be applied to the question of should I get a credit card. While stories of snowballing debt can scare people away, credit cards can be valuable financial tools when used responsibly.

Before you apply, however, you should consider the reasons why to get a credit card and understand the ins and outs of using one. Read on for a rundown of when you should get a credit card, and when you might reconsider.

What Is a Credit Card?

A credit card is a payment mechanism that can substitute for cash or a check. The credit card itself — a thin piece of plastic or metal that may be presented in physical form or saved on your phone — is usually an unsecured line of credit.

Your credit card will have a credit limit, which represents the maximum amount of money you can borrow. The average credit limit is around $30,000, but limits vary depending on credit history and credit score.

Your card will also come with an interest rate, which is the amount of interest you’ll pay on any balance remaining at the end of each billing cycle. Interest rates can range from 0% and up; a good APR for a credit card will depend on your specifics, such as your credit card, but in general, the lower the better.

Credit cards also may have rewards programs, such as travel rewards, cash back, access to events or programs and more. There may also be benefits included with a card like purchase protection and insurance offerings.

When to Consider Getting a Credit Card

Should I apply for a credit card? The answer to this depends on a few factors. For one, you’ll want to make sure you’re getting a credit card for the right reasons. Potentially valid reasons for why to get a credit card may include:

You want to build credit. A credit card can be a great way to build your credit history. By using a credit card and then paying off the balance on time and in full each month, you practice good credit habits and help improve your credit score. A strong credit score can potentially aid you in getting approved for car loans, mortgages, apartment rentals, and more.

You’re making a large purchase. Whether it’s a laptop for school or furniture for your apartment, putting a purchase on a credit card can provide purchase protection. This includes potentially being able to get your money back if the product isn’t as expected or services aren’t rendered. Additionally, some credit cards may offer promotional deals on APR, which could allow you to spread out your payments on your big purchase without paying interest.

You want more protection for your money. While fraudulent charges can still occur on a credit card, there are more protections in place to help protect your credit and identity with a credit card as opposed to cash or a debit card. Many major credit card companies even offer zero liability protection, which means you aren’t liable for any fraudulent charges made on your card in the event of theft or fraud.

You’re planning a trip. A credit card can be a good “just in case” tool to have in your wallet if you’re traveling. Some people like using a credit card for trip planning and expenses. Credit cards also may offer travel perks, such as checked baggage at no cost, or insurance protection, depending on the card.

Recommended: What is a Charge Card

Things to Know Before Getting Your First Credit Card

A credit card can make you feel like you have financial freedom. But with freedom comes responsibility. Here are some tips to keep in mind before you get your first credit card:

Pay your bills on time. Your payment history is a large part of your overall credit score. Setting up autopay as soon as you get your card can ensure that you never accidentally miss a payment.

Understand your credit utilization ratio. Your credit utilization ratio is the amount of money you owe on your cards compared to how much money is available for you to borrow. The lower your credit utilization ratio, the better. Even if you can’t pay your balance in full, paying as much of the balance as you can is helpful in keeping your credit utilization ratio low.

Check your statement every month. Be aware of how much you’re spending on the card. Check your statements and flag any charge that seems unfamiliar. This could be a sign of fraudulent activity.

Create financial habits that stick. Some people like to use their card for automated payments each month on a standard bill, like a cell phone bill. Others like to use their card for specific purchases, like gas or groceries. There are many “right” ways to do credit cards, so it’s helpful to figure out what works for you before you start swiping.

Stay within your means. Some people are tempted to spend when they have a credit card. Make sure to stick within your means and only purchase what you would have been able to cover with cash. It isn’t easy to get credit card debt forgiveness if you take on more debt than you can handle, so you’ll want to avoid that road if possible.

Recommended: When Are Credit Card Payments Due

When Not To Consider Getting a Credit Card

You know yourself best, and you may have a sense opening a credit card may make it too tempting to go overboard. Here are some reasons to not open a credit card:

A partner or friend is pressuring you to do so. If a partner or friend needs access to money and suggests you open a credit card, this could lead to pressure to spend beyond what you can afford.

You’re still working on money management. If you’re still working on money management, sticking to debit cards or buy now, pay later arrangements may help you build up to being able to confidently use a credit card.

You want to buy something you can’t afford. It may be tempting to put a trip or a big purchase on a credit card, but this can potentially cause your finances to spiral out of control. Even if a credit card offers 0% interest, only putting what you can afford to pay off on a credit card is a good rule of thumb.

Pros and Cons of Opening a Credit Card

Weighing the pros and cons of a credit card can help you assess whether or not you should get one.

Pros of Getting a Credit Card	Cons of Getting a Credit Card
Protection against theft and fraud	Temptation to spend beyond your means
Opportunity to build credit when used responsibly	Interest will accrue if you don’t pay off your balance in full
Access to perks and rewards	Potential to harm your credit score
Convenience	Fees may apply

Avoiding Credit Card Traps

As evidenced in the history of credit cards, high interest rates and the ease of spending beyond your means with a credit card can land you in debt. However, you can have a credit card and avoid these traps with these tips in mind:

• Only spend what you can afford. One way to avoid racking up debt on your credit card is to treat your credit card as you would cash. This means only spending as much as you already have in your pocket, with other budgetary concerns still in mind.

• Always pay your balance in full. Whenever possible, it’s important to pay your balance in full each month. This can help you from incurring interest, which can easily tip you into a debt cycle and make it more difficult to pay off your credit card balance in subsequent months.

• Set your bill payments to autopay. You can always set the autopay to the minimum, then manually log in and pay the balance in full. This will ensure you’re always on time with your payments — an important factor in determining your credit score.

• Check your credit card statement each month. Make sure to look over your statements every month to check for any errors or unexpected charges. This can also help you to notice your spending habits and anywhere you can potentially cut back.

• Don’t get stuck chasing rewards. Rewards can be a helpful part of how credit cards work, but as you’re learning to use credit, simpler is better. Consider sticking to just one card in the first few years of building credit, and be careful about spending just to snag rewards.

Alternatives to Using a Credit Card

There are alternatives to credit cards, which can still give you some of the benefits that a credit card might offer.

Use Buy Now, Pay Later Loans

Loans that offer fixed payment strategies to pay off a purchase are becoming more popular. Called installment loans, these loans offer funds that cover the amount of a purchase. Many do not charge interest, but late fees may apply for missed payments.

Like credit cards, it can be easy to overspend with a buy now, pay later loan. Additionally, your creditworthiness may get checked each time you use one of these loans to cover a purchase, which could negatively impact your credit score if it’s a hard inquiry.

Become an Authorized User

As an authorized user, your name is added to someone else’s credit card account, such as that of a parent. In some cases, you may get your own card and be able to make purchases. But in other cases, the person may add you to the card without giving you access. Either way, this can help build your credit history and credit score without the responsibility of having a credit card account under your own name.

Consider a Secured Credit Card

A secured credit card can be helpful for people who don’t have a credit history and may not be able to get approved for a traditional credit card. With a secured credit card, you may pay a deposit, such as $500. This then becomes your credit limit. Over time, and with good credit behavior, you may be able to switch your card to a traditional, unsecured card.

FAQ

Should I get a credit card at age 18?

You can get a credit card at age 18, but you don’t have to do so. If your parents or a relative has a good credit history, consider asking to become an authorized user on their account, which can help build your credit. Keep in mind that if you do decide to apply for a credit card at 18, you must either provide proof of income or get a cosigner.

Are there risks of having a credit card?

Risks of having a credit card include spending beyond your means. This, coupled with high interest rates, could lead to debt that is hard to pay down. By learning to use a card responsibly, you can help mitigate these risks.

How do I choose the right credit card?

The right credit card for you depends on multiple factors, including how you plan to use the card, the interest rate offered, and the perks and rewards of the card. But it’s okay to keep things simple for your first credit card and not get too into the weeds comparing rewards and perks. As you build your credit, you can potentially explore additional cards.

How can I get a credit card with no credit history?

If you have no credit history, you can become an authorized user on a relative or trusted friend’s account. Another option is to apply for a secured credit card. With a secured credit card, you’ll put down a deposit that will become your credit limit. You can then use the card to build credit. Over time, you may be able to switch your credit card from a secured credit card to an unsecured credit card as your credit grows.

Photo credit: iStock/Georgii Boronin
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Mar

2022

How to Save Money on Gas

By Sulaiman Abdur-Rahman | Credit, Financial Independence | Comments Off

With gasoline and home heating oil prices surging since the Russian invasion of Ukraine, consumers are looking for ways to cut their gas bills.

Crude oil prices have risen to their highest level since 2014 amid the war in Ukraine, which began in February 2022 — and has no clear path for a ceasefire in sight. Gasoline and heating oil are some of the petroleum products derived from crude oil, so higher gasoline and heating oil prices may be around for some time.

Fortunately, motorists and homeowners can save money on gas by embracing energy-efficient practices. Here are some of the easiest ways to reduce the pain both at the pump and when paying for heating costs.

15 Ways to Pay Less for Gas for Your Car and Home

Here are 15 ways you can pay less on fuel for your car and home heating system:

1. Follow the Speed Limit

Following the speed limit can help you save money on gas. In general, gas mileage decreases rapidly as you accelerate above 50 mph. Driving 55 mph rather than 65 mph can improve your gas mileage by 15%, according to the U.S. Environmental Protection Agency.

2. Avoid Aggressive Driving

Aggressive driving, including speeding and rapid acceleration, can lower your gas mileage by 33% on the highway and by 5% on city roadways. Motorists who avoid aggressive driving can realize cost-savings by burning less fuel on roads and highways.

3. Remove Unnecessary Weight

Removing unnecessary weight from your vehicle can save money on gas. Storing an extra 100 pounds in your vehicle could reduce your miles per gallon by up to 2%, according to the U.S. Department of Energy.

4. Use Cruise Control on Highways

Using cruise control on highways can help you save up to 14% on gas by maintaining a continuous speed. Constantly accelerating and decelerating burns more fuel, which gives you less bang for your buck on the road.

5. Keep Tires Properly Inflated

Keeping your tires properly inflated can improve your gas mileage by 3%. Conversely, driving with underinflated tires can decrease your gas mileage by 0.3% for each unit drop in pounds per square inch (psi) of air pressure.

6. Stick With Regular Gasoline

Gasoline prices vary by their octane level, with regular being the cheapest and premium being the most expensive. Unless your car requires premium fuel, you can save money by sticking with unleaded regular gasoline as opposed to choosing midgrade or premium alternatives.

President Joe Biden has predicted gas prices will go up further as a result of Russia’s invasion of Ukraine. The potential for crude oil prices to continue rising may motivate some observers to invest in energy stocks. Others may see this as an ideal time to invest in utilities.

7. Don’t Idle When Parked

Allowing your car engine to run idle while parked is wasteful. Idling can consume up to half a gallon of fuel per hour, according to the U.S. Department of Energy. You can save gas money by turning off your car when it’s parked.

8. Search Online for Cheapest Fuel Stations

Some gas stations may offer cheaper fuel than other gas stations in your geographic area. You can search online for the cheapest gas stations in your area. Websites or apps like GasBuddy can help you find the lowest gas prices in your city or town.

9. Reduce Aerodynamic Drag

Your vehicle has to overcome wind resistance or aerodynamic drag whenever you drive it in the open. Reducing aerodynamic drag can save money on gas, and motorists can reduce aerodynamic drag by driving with the windows closed.

10. Minimize A/C Usage

Minimizing your vehicle’s air conditioner usage can save gas money. Using the air conditioner in some cases can reduce your vehicle’s fuel economy by more than 25%, which is akin to paying more at the pump over time, according to the EPA and U.S. Department of Energy.

11. Clean or Replace Air Filter as Necessary

Cleaning or replacing your vehicle’s air filter as necessary can save gas money, particularly if you’re driving an older vehicle manufactured before 1980. Older vehicles may feature a carbureted engine that becomes less fuel efficient when operating with a clogged air filter, according to the U.S. Department of Energy.

12. Get Engine Tune-Ups as Needed

Getting engine tune-ups as needed can improve gas mileage by an average of 4%, according to the U.S. Department of Energy. An engine tune-up is a comprehensive inspection that determines whether any components of the engine need to be replaced.

13. Consider New Vehicle Options

You can consider buying a new or used vehicle with better gas mileage to save money on gas. Consumers can also consider buying all-electric vehicles to move away from gasoline and diesel fuel entirely.

14. Insulate Your Home

Homeowners can save up to 15% on heating and cooling costs by air sealing their homes and adding insulation in attics and other areas of the home, according to the EPA. This could be a worthwhile investment considering how the Ukraine invasion may affect oil, gas, and clean energy investments.

15. Lower Your Thermostat

Homeowners can save money on their home heating bills by setting their thermostats to 68 degrees Fahrenheit. The Delaware Public Service Commission says you can save 5% on your home heating costs for every degree you lower your thermostat below 70.

Considering the global economy and looking at oil and natural gas to understand Russia-Ukraine, homeowners in the New England and Mid-Atlantic states may consider thermostat adjustments as a cost-saving measure.

The Takeaway

The price of gasoline and heating oil may stay at its high level – or even rise as the conflict in Eastern Europe continues. Feeling the pinch in their wallets, consumers may want to try changing their habits and practices to be more energy efficient.

Another simple way to save money on gas is to pay for it using a credit card that offers cash back. [cc_three_percent]

Photo credit: iStock/ADragan

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Jan

2022

What Is Credit Card Consolidation?

By SoFi Editors | Credit, Debt Payoff, Financial Independence, personal_loan | No Comments

First you take out a credit card because it has a great airline rewards program. Then you take out a card because it gives you a fabulous discount at your favorite retail spot.

Maybe you had some bills you couldn’t pay off right away, and so you decided to open up another card to cover those costs. And on and on you went, until suddenly you have a wallet full of credit cards—and a hard time keeping track of them.

If you find yourself in this situation, you may want to stop and assess to be sure you haven’t set yourself up to overspend, forget to make payments, and run up a heap of credit card debt. Consolidating your cards can sometimes provide a solution, allowing you to ditch keeping track of your excess cards and focus your energy on just one bill.

How Credit Card Consolidation Works

Credit card consolidation is the practice of combining your credit card balances with one new loan from a financial institution or another credit card company. Ideally, the new loan or credit card consolidation terms will allow for multiple credit cards—perhaps some with sky-high or variable interest rates—to be consolidated with one loan, ideally at a more manageable interest rate.

If you’re not quite sure how that could help your debt management, think of it this way: We all have that one closet or drawer that is just filled to the brim with random stuff—knick-knacks, boxes, childhood toys, and clothes that you just don’t have room for. It gets so bad that either you’re too afraid to open your closet, or the closet is so full that you physically can’t open it.

That closet represents your credit card debt. You might have one, two, three, or four or more cards—and you may even be making minimum payments—but with so many cards to juggle, you may not be paying attention to details on the bill, like how much interest and fees you’re accruing.

It may seem easiest to put this debt out of sight and out of mind. This feeling is understandable; credit card debt can be overwhelming to the point that it seems easier to just keep the closet door closed.

When you consolidate your credit cards, instead of having to remember multiple payment deadlines (and accruing multiple separate fees and interest balances), you’ll only have one payment.

Not only is debt easier to manage and pay off when you only have one loan, consolidating your credit card debt may mean that you could also get a lower interest rate, which may help reduce how much you pay over the long-term.

This factor may be especially helpful considering that the average credit card interest rate hovers around a whopping 17%.

Here’s a look at some of the common methods you may consider using in order to consolidate your cards.

Consolidating with a Credit Card Balance Transfer

One common way to consolidate your credit card debt is with a credit card balance transfer that puts all of your credit card debt onto one new card. In fact, many credit card companies will offer low interest—or even 0% interest—transfers for a certain period of time to encourage you to use a balance transfer for consolidation.

However, if you’re considering this route, there are a few things to remember. First, as mentioned, the low or 0% interest rate may only be introductory rates, which means you’ll have a limited amount of time to take advantage of them.

After the introductory period, rates my skyrocket, perhaps becoming even higher than your interest rates from before. So, this strategy may work best if you have a manageable amount of debt and could pay it off within the introductory period or shortly thereafter.

You may also have to pay a balance transfer fee, which may be a fixed fee or a percentage of the amount that you owe. If you carry a high balance on your cards, this fee could be prohibitively expensive.

Additionally, new purchases on this card may not be treated the same way as your transferred debt. For example, you may have to start making interest payments on new debt immediately.

Using a Debt Consolidation Loan

Your bank may offer a specific debt consolidation loan that allows you to corral your credit card debt—and even medical debt or personal loan debt—under one loan. One single loan can simplify your payments, and may even carry a lower interest rate than your credit cards.

As with credit card balance transfers, beware the teaser rate with these loans. Low interest rates may only last a short period of time before your bank hikes your interest rate. Consider the cost of fees to take out the loan as well.

Another important factor to consider is the term of the loan. While your interest rates may be lower, the length of time over which you’ll be paying may actually increase the amount of money you pay over time.

Taking out a Personal Loan

You may also want to consider a personal loan to help you consolidate your debt. Banks and lenders typically offer these unsecured loans. Interest rates may be lower than those you are currently paying, but you may want to consider that, depending upon your credit history and the lender’s criteria, the lowest interest rates may not be offered to you. Also, personal loans may come with origination fees, which may be between 1% and 8% of your loan.

Potential Benefits of Credit Card Consolidation

Credit card consolidation is an option to help make your debt more manageable. While it won’t magically whisk away your debt, better terms may give you the confidence, organization, and time you need to get rid of it altogether.

A credit card consolidation loan may help you pay the debt off sooner, or at a lower interest rate, and give you emotional and financial relief.

And because with consolidation all of your debt will be combined into one new loan, you’ll only have to remember one payment deadline, helping to reduce the likelihood of late payments and fees.

Unlike filing for bankruptcy or defaulting, although credit card consolidation may have an initial negative effect, if you do pay off your debt you may be able to raise your credit score in the long run. It may provide you with a tangible solution to tackle your credit card debt head on.

Should You Consider Credit Card Consolidation?

If you have a large amount of high-interest debt and want a simple, more streamlined way to manage your credit card payments, you may want to consider credit card consolidation via a fixed-rate, unsecured personal loan.

Understanding whether this is the right avenue for you also depends on your personal financial situation. Here are a few hypotheticals:

You…

Have a plan to pay off your debt.

Is credit card consolidation right for you?

Credit card consolidation isn’t a quick fix. It typically works best if you have a long-term debt management plan that includes budgeting and a plan to cut spending.

You…

Have manageable debt.

Is credit card consolidation right for you?

One possible way to figure out if your debt is manageable is if you answer “yes” to either of the following questions: Can you pay off your debt in five years? Is your debt less than half your yearly income?

You…

Are serious about paying off your debt.

Is credit card consolidation right for you?

Sometimes credit card consolidation can boost your confidence a little too much, resulting in a more relaxed approach to debt payoff. You can potentially avoid this pitfall by taking your debt payment plan seriously and committing to making the necessary payments (at least the minimums) each month.

You…

Can pay off your credit card debt in six months or less.

Is credit card consolidation right for you?

Probably not. If you can pay off your debt that quickly, then the savings you’d receive from consolidating your credit card debt would likely be minimal.

Potential Cons, and Other Factors to Consider

When you consolidate your credit cards, it’s easy to feel like you have a new lease on life. But in taking out a consolidation loan (or balance transfer), you are still taking on debt and will still need to make payments on time to avoid late fees and damaging your credit. Avoid simply kicking the proverbial can down the road by making a plan to pay off your new loan.

Lenders take your credit history, income, and other factors into account when considering you for a personal loan to consolidate your credit card or other debt.

If you’ve been making on-time payments, meet income criteria, and have a credit history that meets the lender’s eligibility requirements, then consolidating your credit card debt might be worth looking into. The sooner you can set yourself up to pay off your debt successfully, the better (generally), and credit card consolidation can be one way to go about it.

With a SoFi personal loan, you can check your rate and terms without affecting your credit score1 and if you like what you see you can apply to consolidate your credit card debt into a new loan with no origination, prepayment, or late fees—and that could help give you that confidence, organization, and time you need to get a better handle on your debt.

Visit SoFi to learn more about consolidating your credit card debt with a personal loan and see what rates you may qualify for.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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