Transcription:

Episode 10 – What you need to know about Credit Cards

Announcer: This is Blue Money. A finance podcast made for cops by cops. With us you know your money safe. Lieutenant Jim Donnelley of the Bensalem Police Department and co-host Kevin McGarry of Valley Financial Group come together to help protect and serve your financial needs. This is Blue Money.

Jim Donnelley: I a welcome everyone back to the Blue Money podcast. My name is Jim Donelley. I’m here with my co-host Kevin McGarry.

Kevin McGarry: What’s up Jimmy?

Jim Donnelley: Not much Kevin. I thought today’s topic would be important one for all of our listeners out there. We just talk about credit cards, how people getting debt, some ways to pay it out. I mean, I think we all had our obstacles with credit cards out there. We listen to it.

Kevin McGarry: Credit cards in Kensington is kryptonite.

Jim Donnelley: It was the same thing at Penn state when I had one buddy, I thought it was rich. So, I mean, I got in trouble with credit cards. It’s not major credit trouble, but I was going to have Penn state. I was a senior and giving those credit cards out. Like you go to Tailgate. I got filled one out next thing you know I got one in mail and I had a school credit line, like 12,000 when I graduated, guess I was max out at 12,000. I spent money on nonsense running tag at the G-man.

Kevin McGarry: Being a hot shot at the board.

Jim Donnelley: Thinking I’d paid it when I got out. But the problem was when I got out and I owed like 12 grand in credit card, trying to pay school loans and realized if I paid the minimum payment, I was never gone pay it off. It was something like I would pay this off for $200 hours a month or next 2065 would be paid off. It was something so crazy to make the payments.

Kevin McGarry: Treadmill payments, man. That’s all it is.

Jim Donnelley: So, what do you think about credit cards out there? Like Kevin, what are you seeing?

Kevin McGarry: Like you mentioned, I think there’s around four credit cards per household. To me that spells out stress, man, a lot of stress. You got multiple cards, multiple payments, multiple rates, multiple amounts you owe just a lot of headaches. That’s what I see there.

Jim Donnelley: Yeah. I think a lot of mistakes that we see Kev doing the reviews and we ask police officers, we asked other people that are just coming for reviews. Like how’d this happen? How’d you get so much debt? And the first one is credit cards just let us spend more than we make. And that’s obvious. So, when we want to buy that big purchase, we wouldn’t to have enough cash on. We just use a card and we want that instant gratification of buying something that we want but we don’t really need it. The second one we always see is people don’t have that emergency fund. We’re always talking about how important it is to have an emergency fund for six months. If you don’t have that and God forbid your car breaks down, you need a transmission, need some new home repair, you need a new roof, you throw them a credit card. But the problem is you don’t have the money next month rolls in. You still don’t have it. The third one, a lot of these guys have these credit cards, the card holders, they fall for the card rewards trick. Everyone always wants to give you something for using their credit card. Like my American airline ones, I get a free mile for every dollar I spend. So to me, I always is a good, good deal. Like, oh, I want to get some points for this. But it never works. I don’t pay him. I paid the minimum or I don’t pay it off and it just doesn’t work out. So, now I just try to pay it off every month and not even deal with it. So, a lot of people fall for that. But previously, when I just opened this up, I talked about paying a minimum, another problem. You’re just only paying a minimum. And that’s only 2% of what you owe. That’s how they usually get that. So if it’s under a thousand, it’s usually $25. If it’s over a thousand that you owe, it’s usually 2% of whatever you owe to credit. So, 2% is not bad, but they’re banging you for maybe 18, 19% that month. Do the math, it’s a losing bet. That’s how they’re going to make a lot of money when you’re not paying off your monthly balance. Lastly, I mean, a lot of people have too many cards. A lot of people feel better if I have three cards and I each card, I only owe three grand on it. Bottom line, you still owe $9,000 of credit cards. That’s it. But people feel like better that, oh, I only owe three grand, but you don’t, you have three cards. So, too many cards is a problem. And then the biggest one I think that we see is when people get these credit cards and they make a big purchase during the 0% APR, maybe it’s for 18 months or 12 months, they don’t pay it off. You see this with furniture a lot. If you don’t pay it off in the 18 months, you pay all that back interest. And a lot of people don’t read the fine print when they’re getting the contract. 

Kevin McGarry: Have you ever read the fine print?

Jim Donnelley: No, I haven’t. No idea.

Kevin McGarry: It’s crazy small.

Jim Donnelley: Never looked at it. There’s nobody listening to this podcast that read all that fine print or credit card. I really don’t…

Kevin McGarry: If you have reach out to us.

Jim Donnelley: So Kevin, when we see guys are going down the right path, going down the wrong path with the credit cards and the credit card debt, that one of the things that we want to knock out is debt. Obviously, even when we’re starting to finance plan, what do we tell them at Valley? Give them some tips, some methods that we use to get them out as a credit card debt.

Kevin McGarry: Sure. The first thing is, what we tell them is don’t beat yourself up. Don’t blame anybody, just create a plan and attack it. And the first thing we want, anyone that sits down with us or anyone we’re helping to get out debt is help them to create not a budget, but a spending plan. Like know where your money is going and don’t spend money you don’t have right now. So, they’re the first two things we’re trying to do. The next thing we’re trying to do is get our clients organized. Especially with their credit cards, get it on piece of paper list, all your credit cards, list all the amounts you owe. Their interest rates and their minimum payments. And once you got it organized, then you plan how to attack it. And there’s multiple ways we can attack this. First way, we can attack it is what the snowball method. What the snowball method does it attacks the credit card with the smallest amount. So, that’s the one you’re paying off first and paying extra. All the other credit cards you have, you’re paying the minimums. And then once you pay the lowest one off, you’re stepping up to the next one and you’re trying to pay that off as quickly as possible and paying the minimums on the other credit cards. So, that’s the snowball method. The other one is the avalanche method where we attack the highest interest rate, the highest APR card. And you’re paying that off first while paying the minimum on the other ones. So, there are two ways we like to attack it. We’re also looking to try to consolidate loans and we don’t want to be open to any more credit cards, but we’re looking for zero interest rates and where we can apply that to an APR of 18 to 26%. I mean, think about it. Like people want to invest in their retirement accounts or save in their retirement accounts, make their contribution and the historical return of the index is around between 10, 11%. And if you’re paying 21% of your credit card, you’re losing.

Jim Donnelley: You’re losing every single time.

Kevin McGarry: So, that’s what we’re trying to do, Jim, you know, don’t beat yourself up, get organized. And when you’re getting organized. Something I didn’t mention is once a year, check your credit score. Third thing is, which plan do we attack and what we’ll hear from the clients which ones shall I use? The snowball or the avalanche method. It all depends. If you’re looking for wins, snowball’s typically the better one we believe. If you looking to save money and impact financially, we would look at the avalanche.

Jim Donnelley: Yeah. Dave Ramsey, he’s always pushing the snowball. But I think like you said, if they want the small wins out…

Kevin McGarry: He loves snowballs.

Jim Donnelley: Yeah. But if not go avalanche, I think avalanche makes more sense in my mind. And the other two mistakes, I see Kevin is canceling the credit cards as soon as they paid them off. And why is that? Two reasons, why it causes problems for them? One, it affects the length of your credit history and also affects the credit utilization ratio. So, that’s two components of your credit score that are very important. And if people don’t know what the credit utilization ratio is, it’s the percentage of your total value of credit lines across all the cards you have. So, if you’re caught one up, it’s going to make the ratio higher. So, that’s things you needed. Usually your credit utilization should be below 30%, but ideal it should be under 10. So, if anyone out there wants to know that. Now, if you’re going to cut a credit card up, cut the one up the one you just got recently. If you have four and you want to get rid of one, keep the one you have the longest because that’s your credit history. And that’s going to show your longevity of the credit card that you had. So, it’s important to keep that. The other problem we see a lot is applying for too many credit cards. Anytime you apply for a new credit card, they do what they call a hard check. And that means they have to reach out to the credit bureau and they run a real history of it. Now, if some other people don’t give you consent, it’s a soft check and it don’t affect your score. So, if you’re real worried about your credit score, don’t be applying for too many cards because one’s going to get you in trouble. If you do get the cards and the second one, it’s going to hurt your score when they’re doing these hard checks on you. So Kev, this whole podcast here’s some points here that you really want everyone to take away from listening to this out there, help the listeners out here.

Kevin McGarry: Yeah. To wrap this up, Jim, is simple. Number one, if you have an emergency account, you typically won’t get any credit card debt issues. But what I would say to you is don’t beat yourself up, check your history, be organized and attack it and stick to the plan. Because being debt free creates a lot of good nights of sleep. Because once you have that debt, there’s some sleepless nights.

Jim Donnelley: Yeah. And if you get on a credit cards, UN control, remember it’s a great asset to have one case of emergency case. You want to make that purchase. If you utilize your credit cards properly, they’re a great tool. The problem is most Americans we just can’t do it. 

Kevin McGarry: No, I mean think about it. I mean, I never had four girlfriends at once but it would be a lot of stress if I did.

Jim Donnelley: You’re lucky you got one girlfriend. That’s a whole topic, man. So everybody, I want to thank everybody for listening to the podcast today. If you have any questions about any credit card that you may have, please don’t hesitate to reach out to me and Kev. Our contact information is on the show notes. If you have any other financial questions out there that you want to run by me and Kevin, please, we’re here. Just reach you out to us. We’re here. So, everyone thank you for listening. Stay safe and see you next time.

Kevin McGarry: Be safe out there.

Announcer: Thanks for listening to Blue Money, to learn more about Jim and Kevin or for a free financial assessment, visit valleyfinancial.com or click on the link in the podcast description or show notes. Until next time safe investing.

 This material is intended to be educational in nature and not as a recommendation for any particular strategy approach, product or concept for any particular advisor or client. These materials are not intended for any form of substitute for individualized investment advice. This discussion is general in nature and therefore not intended to recommend or endorse any asset class security or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment clients as well as all other readers are encouraged to consult with their own professional advisors, including investment advisors and tax advisors. Valley Financial can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.

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