45% of respondents to a recent study by Credit Cards Explained said they’d never received a proper education about credit cards. Another 7% said they’d learned what they knew while they were in the bank applying for credit. Just 30% said they’d learned about credit cards in middle school or high school.
Those numbers are disheartening, but not surprising. When Champlain College’s Center for Financial Literacy evaluated and graded states on financial literacy in their high schools, only five states earned “A” grades. More than half of states came in at a “C” or below.
Despite that lack of preparation, there is some good news in the Credit Cards Explained survey results: the most common reason survey participants reported opening new credit card accounts was to improve their credit scores. While 8% admitted to opening new credit cards accounts because existing credit was maxed out, most cited more strategic reasons. In addition to improving credit ratings, these included:
- Cash back rewards
- Travel rewards
- Sign-up bonuses
Of course, making credit card rewards and bonuses pay requires strict adherence to a plan. For example, cash back rewards can add up for credit cards users who use their cards throughout the month and then pay off the balance when the statement arrives–if there’s a grace period on purchases, and those payments are always made in full and on time.
Carrying a balance from month to month can wipe out those rewards and put a credit card holder in the red, as interest may exceed the cash back. That impact is aggravated if a late payment results in both interest charges and a late fee. Flaws in execution like those described here could help explain why, despite the reported strategic approach to credit card usage, survey respondents also said credit card debt was holding them back. Plans and life decisions participants said were delayed by credit card debt included:
- Taking a vacation/travel – 30%
- Buying a home – 21%
- Buying a new car – 18%
- Going to school – 11%
- Getting married/starting a family – 9%
- None – 19%
Is credit card debt weighing you down? If you’re overwhelmed by credit card balances that keep increasing despite your best efforts to keep payments current, learn more about how UpRight Law can help.
