5 Credit Card Mistakes You Need to Stop Making in Your 20s
Your 20s can be an awesome and awkward time of your life. You’ve finished school and you’re now starting to work full-time. You’re an adult! The problem is, they don’t exactly teach you money management in school, so it can be pretty easy to start making some serious credit card mistakes.
Credit cards are an important tool and a part of life. When used responsibly, they’ll help you manage your finances. However, if you abuse them, you could quickly find yourself in some serious debt. The following credit card mistakes could wreck you financially, but if you take care of them now, you’ll put yourself on the right path.
Making only the minimum payment
If you weren’t aware, credit cards have insanely high interest rates which average about 20%. If you’re only making the minimum payments and continuing to charge more things to your card, then your balance – and debt – could get out of control.
Let’s say you’re carrying a balance of $5,000 on your credit card with an interest rate of 20%. Your minimum monthly payment is just $150 (3% of the balance), but it would take you 50 months (4.2 years) for you to pay the balance and you would have paid an extra $2,359 in interest.
Only charge what you can afford to pay off at the end of every month. Paying interest charges is never worth it.
Paying late or not at all
In addition to interest charges, many credit card providers charge a late fee if you miss your payment date. More importantly, paying late or missing them completely can have a dramatic affect on your credit score. One late or missed payment probably won’t be a huge deal since it may have been an honest mistake, but if you make two late or missed payments in a row, then you’ll instant see a huge drop in your credit score – think 50 – 100 points, if not more.
Now, if you choose to completely ignore your bills, then things will escalate quickly. Your credit card provider will try to contact you first to find out why you’re not making your payments. If you decide to dodge them, then they’ll send your debt to collections which will leave a permanent mark on your credit history. If it comes to this, you’ll have a hard time in the future getting any type of loan unless you repay the outstanding debt.
You’re using the same credit card
Most people get their first credit card while in college or university. This card will likely come from the financial institution you currently bank with which isn’t a bad thing, but there are so many other options out there. You might be wondering why you need a new credit card? Well, so you can maximize your earning potential.
The best travel rewards credit cards in Canada offer huge sign up bonuses and points earning potential which can easily be redeemed for travel. If you prefer to keep things simple, you can take a look at the best cash back credit cards which will earn you a set % in cash back on all your purchases.
If you’re responsible with your spending, then you should apply for a credit card that gives you the most rewards based on your spending patterns.
Closing your oldest card
Okay, so you’ve decided to apply for a new credit card to take advantage of the benefits, does that mean you should close the account on your previous card? No, since keeping that account open can actually increase your credit score.
Presumably, your previous credit card is your oldest one. By keeping it open, it shows you have a longer history of making payments on time which is one of the factors in determining your credit score. Sure, you’ll have access to more credit, but this can help you too since it’ll lower your credit utilization rate which is another factor in building your credit score.
For example, let’s say you constantly carry a balance of $2,000 which you pay off at the end of every month. If your old credit card had a limit of $5,000, that means you had a credit utilization rate of 40%. Now, let’s include the new card you just got approved for which also has a $5,000 limit. Well, now you have access to a total of $10,000 in credit. That $2,000 you normally charge now gives you a utilization rate of just 20%. This doesn’t mean you should apply for more credit cards to lower your utilization rate, but what it does mean is that you shouldn’t cancel old cards right away.
Not taking advantage of your included benefits
Depending on what credit card you have, you may have some pretty awesome included benefits. Generally speaking, most credit cards come with extended warranty, price assurance, and zero liability insurance as long as you charge the full purchase to your credit card. These benefits may not seem like much, but it definitely gives consumers peace of mind.
As you can imagine, higher end credit cards come with better benefits. The best travel credit cards come with a comprehensive travel insurance package which usually includes travel medical, trip cancellation / interruption, and lost / delayed baggage insurance. In addition, you could very well have included car insurance, lounge access, concierge service, free checked bags, roadside assistance, and much more.
All of these benefits have a real cost value associated with them which easily offsets any annual fee that you may be paying. Be sure to read the cardholder agreement in detail, so you know exactly what you’re entitled to.
Best for Groceries & dining
based on spending $2,200/mo after $156 annual fee
- Earn rewards
1pt – 5pts / dollar spent
- Welcome bonus
15,000 bonus points (a $150 value)
- Annual fee
$156
Perks of the American Express Cobalt® Card
Perks | Details | |
---|---|---|
Lounge access | Not included | You’ll gain complimentary passes to airport lounges. The number of passes and lounges you have access to will vary. |
Waived foreign transaction fees | Not included | A surcharge that credit card holders pay for purchases made in a foreign currency (typically 2.5%). |
Travel accident insurance | $250,000 | If you suffer a loss as a result of an accidental bodily injury sustained while occupying a common carrier, you are eligible for this coverage. |
Travel emergency medical | $5,000,000 for first 15 days (under 65) | If you require urgent medical care while on a trip outside of your home province, you will be covered for any eligible medical expenses incurred. |
Car rental insurance | MSRP of up to $85,000, for 48 days | Credit card rental car insurance usually covers theft, loss and damage to your rental car in the case of an accidental collision. |
Trip cancellation | Not included | If you have to cancel your trip before it’s even started, your prepaid travel costs will be covered up to a maximum amount if the cause of cancellation is eligible for the insurance. |
Trip interruption | Not included | If your trip has to be cut short or is delayed after the scheduled departure date, you will be covered up to a maximum amount for an eligible cause of interruption or delay. |
Flight delay insurance | $500; delays 4 hours or more | If your flight departure is delayed by a certain number of hours, you’ll be reimbursed a certain amount for necessary and reasonable expenses. |
Baggage loss insurance | $500 per trip for all persons | If your checked bag cannot be located by a common carrier, you’ll be reimbursed for a portion of the replacement cost of lost personal property. |
Baggage delay insurance | $500; delays 6 hours or more | If your checked bag is not delivered within a specified time upon your arrival, you’ll be reimbursed for the cost to replace essential items. |
Hotel/motel burglary | Included | Provides protection, while you’re checked in, for your personal belongings when left unattended in your room up to a certain dollar amount. |
Mobile insurance | Up to $1,000 for 90 days | Reimburses a portion of your cell phone in the event it’s damaged or lost. Device coverage is limited to a certain period of time after purchasing with your credit card. |
Purchase assurance | Up to $1,000 for 90 days | Automatically protects new purchases by insuring them for 90 days from the date of purchase in the event of loss, theft or damage. |
Extended warranty | Up to one additional year | Either doubles the length of the item’s manufacturer’s warranty coverage or extends it by 1 year, whichever is less. |
Price protection | Included | If, within a certain amount of time of purchasing an item, its price drops or you find an identical item offered for a lower retail price than what you paid, you will be reimbursed for the difference. |
Other perks
- Ratehub.ca’s 2023 Award Winner – Best Rewards Credit Card
- In your first year as a new Cobalt Cardmember, you can earn 1,250 Membership Rewards® points for each monthly billing period in which you spend $750 in net purchases on your Card. This could add up to 15,000 points in a year. That’s up to $150 towards a weekend getaway or concert tickets
- Earn 5x the points on eligible eats and drinks in Canada, including groceries and food delivery. Spend cap applies.
- Earn 3X the points on eligible streaming subscriptions in Canada
- Earn 2X the points on eligible ride shares, transit & gas in Canada
- Earn 1 additional point on eligible hotel and car rental bookings via American Express Travel Online
- Earn 1X point for every $1 in Card purchases everywhere else
- Enjoy access to hotel bookings, a room upgrade (when available), 12pm check-in and late check-out (when available), and up to $100 USD hotel credit to use on amenities when charged to the room for a stay of 2 or more consecutive nights through The Hotel Collection from American Express Travel
- Transfer points 1:1 to several frequent flyer and other loyalty programs
- Cobalt Cardmembers receive regular Perks such as bonus reward offers and access to great events
- Access Front Of The Line® Presale & Reserved Tickets to some of your favourite concerts and theatre performances and special offers and events curated for Cardmembers with American Express® Experiences
- American Express is not responsible for maintaining or monitoring the accuracy of information on this website. For full details and current product information, click the Apply Now link. If you apply and get approved for an American Express Card, (I/we) may receive compensation from American Express, which can be in the form of monetary payment
Ratehub’s take
The American Express Cobalt is one of Canada’s best travel credit cards. If you’re looking for a versatile credit card that rewards both everyday spending and travel, the American Express Cobalt is an ideal choice. Cardholders can enjoy strong travel insurance, a generous welcome offer, and flexible point redemption options.
Pros
- Exceptional point earning: 5x the points on eligible restaurant and food delivery, 3x the points on eligible streaming services, 2x the points on travel and daily transit. The earning potential for restaurants and takeout is significantly higher than most other cards
- Flexible point redemption: Travelers can choose from three ways to use their points: points 1:1 to several valuable loyalty programs including Aeroplan, use the Fixed Points Program to simplify redemptions regardless of travel dates, or use points for statement credits at a rate of 1 point = 1 cent. Or, redeem Membership Rewards for travel, gift cards, merchandise, or purchases
- Exclusive access: Enjoy privileges such as Front of the Line Presale and Reserved tickets to concerts, theatre performances, movie screenings, culinary events, and other special offers
- Comprehensive travel insurance: Benefit from a strong travel insurance package, including up to $5,000,000 in travel emergency medical
- No additional fee for authorized users: Add authorized users for no extra cost (an average fee of $30-50 on other comparable cards)
Cons
- Monthly fee: A monthly fee of $12.99 (totalling an annual fee of $156, which is higher than most other rewards cards)
- Limited acceptance: American Express isn’t as widely accepted in Canada compared to Visa and Mastercard
- Travel insurance age limitations: The travel insurance package does not cover trip cancellation or medical coverage for cardholders over the age of 65
- Lack of airport lounge access: Frequent travellers may be disappointed as this card does not offer access to airport lounges
Eligibility requirements
Minimum credit score: 725
Minimum income: N/A
Interest rates
Purchase interest: 21.99%
Cash advance: 21.99%
Balance transfer: N/A
The final thought
Don’t feel bad if you’ve made some of these mistakes, no one is expecting you to be perfect. That being said, the quicker you take care of these concerns, the better off you’ll be financially.
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