Credit cards are a valuable financial tool for renting a home or taking out a loan, but like a double-edged sword, beware! Slipping into a debt spiral is also easier in today’s economic climate. On this episode of Good Cents, Eric Rosenberg and Deacon Hayes, President of Well Kept Wallet, dive into how to make the most of your credit cards while avoiding increasingly expensive debt. 

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Here’s the recap of today’s 15-minute episode: 

• Credit cards as a valuable financial tool for renting a home or taking out a loan, but it’s important to be cautious about going into debt in today’s economic climate.
• Rising interest rates mean carrying a credit card balance is more expensive. It’s important to keep your credit utilization below 30% and pay off balances in full. 
• To help manage finances effectively, automate payments, take advantage of credit card rewards, and budget with a financial wellness tool like Payactiv.

Listen below or read the transcript that follows. 

Eric Rosenberg: 

Before we get started, here’s a quick reminder that the Pay Active podcast is for education and  entertainment purposes only and should not be considered financial advice. 

Hello everyone. Welcome back to the Pay Active podcast. As always, I am your host, Eric Rosenberg.  This month, we’re celebrating Credit Card Education Month! Building credit can be a daunting task, but it’s important if you want to rent an apartment, take out a car loan, or a home loan. Payactiv is an all-in-one financial wellness tool that can help you budget better and pay your credit card bill on time with the Payactiv Visa Card. It’s not a credit card, it’s a financial tool and a bank account alternative that can securely hold up to $10,000. Search “Payactiv” in your phone’s app store to get started. And with that, let’s dive into today’s Episode: The Double-Edged Sword of Credit Cards.

Now, credit cards are a  topic we’ve discussed in the past, and there are some good and bad. Some might call it a double edge  sword because credit cards come with a whole lot of benefits, but there’s also risks. And one of those  risks that we notice a lot right now is the risk of paying very high monthly interest payments. As interest  rates increase, as we’re seeing right now in the increasing interest rate environment, you might notice  the interest rates on your credit cards are going up as well. So, today we decided to ask our good friend,  Deacon Hayes, from Well Kept Wallet, some questions about how he would manage credit card debt  and to help us navigate our way through paying off and avoiding credit card interest as we move  forward. 

All right, everyone, I am so excited to be here with the man of the hour, Deacon Hayes from Well Kept  Wallet. Deacon, welcome so much to the show. We’re glad to have you. 

Deacon Hayes: 

Yeah, thanks for having me, Eric. 

Eric Rosenberg: 

So, as we mentioned in the intro, today we are talking all about high interest credit card debt and how  to not be in high interest credit card debt. So, the first thing I wanted to ask you, Deacon, interest rates  have definitely not been stable lately. They’ve been in the news. So, what does it mean to somebody  when they see in the news interest rates are going up if they have credit cards? 

Deacon Hayes: 

Yeah ,so everybody kind of thinks about interest rates in terms of mortgages because that’s what people  typically associate, right? They’re like, “Oh, mortgages are now six, 6.5%.” But the reality is when  mortgages raised, everything else raises as well, not just because of mortgages, but because the Fed  raises the rate. So that means that your credit card that might have been 15% could be 18 to 20% now in  interest, which means if you carry a balance, you’re going to pay a lot more in interest to the lender than  you probably want to at all. 

Eric Rosenberg: 

Right. So if you see, to just think about the numbers, how that might affect me as a credit card  customer. Let’s say I have a thousand dollars balance of my credit card and my credit card’s interest rate  is 18%. I see in the news interest rates are going up a quarter percent. A couple days later I get an email  from my bank that your interest rate is up 0.25%. So what does that mean to you as an individual when  you see that rate go up a little bit? 

Deacon Hayes: 

Yeah, what it typically is going to mean, if you’re carrying that balance that the amount of interest, every  month that you’re going to pay is going to be more, right? So there is this direct correlation to you as the  card holder that when interest rates go up and if you carry a balance, you’re going to pay more to that lender each month, but it’s about a 3% spread from about a year and a half ago, year, year and a half  ago. So meaning it’s 3% more to borrow money on any level, personal credit cards, mortgages, et cetera. 

Eric Rosenberg: 

Yeah, that’s really important to know. It’s also good to know that your savings account interest rates are  hopefully going up so when all the rates go up, hopefully they all go up in lockstep. As you were saying,  it affects everything. It affects mortgages and credit cards and a lot more. But if you have a credit card,  now, there’s a lot of misconceptions about you have to carry a balance from month to month and pay  interest to build your credit score and things like that. How would you address someone who came up  to you having a coffee, a friend and said, “I carry a little balance, I want to make sure I’m building  credit.” What would you say to them? 

Deacon Hayes: 

Well, what I’d say is, yeah, there are a lot of misconceptions. So what I do is clear it up and I’d say, “Hey,  really what matters is your credit utilization. How much of that credit card balance are you using?” If  you’re using 50%, that could be a red flag to the lender. So really keeping it under 30, and I even like to  keep it under 20/15 and pay it off every month. They want to see a history of you paying back what you  owe them and them not having to chase you. And if you do that long enough, you’ll be credit worthy.  And so it’s less about carrying a balance every month and just paying it off in full, keeping it below that  30%, or 20% if you want to be a little bit more conservative like me. So that you’re not risking paying  interest every month. 

Eric Rosenberg: 

Yeah. And I like what you just said there, paying it often full every month so you’re not risking paying  interest. Can you go a little more into how someone could just avoid paying interest? Maybe their  interest rate is 28%, but we know there’s a trick where you don’t have to pay interest at all on credit  cards, right? 

Deacon Hayes: 

Well, yeah, the trick is pay it off, but there are other things you can do. You could do a 0% balance  transfer, but you have to be aware of fees. That’s one of the things you can get caught up with. You have  to make sure that you can pay it off within whatever that timeframe is that term that you’re agreeing to.  Otherwise, you could get all of that retroactive interest tacked onto your bills. So really the best thing to  do that I would say is get a side hustle of some sort, get some extra money so that you can pay it off  faster. Let’s say you have an extra $500 and you’re like, “I don’t have enough from my job.” Okay, what  could you sell on eBay or Craigslist to make an extra few hundred bucks? How many hours do you have  after work where you could maybe go do a DoorDash delivery or Instacart? So figuring out how you can  maybe use the extra time that you have. 

And I know it seems kind of like a lot of times I don’t have extra time. If we were to take an audit of 24  hours, we would clearly see there’s some time that we’re spending doing other things that we could use  our skills to make money with. I know for me, personally, I could look at it and say, “Okay, I was scrolling  a lot on TikTok.” I bet you they have those apps, Eric, where will tell you how much time you spent on  each app. If you just looked at that app and you’d say, “Hey, if I cut down usage on these different apps,  I’d have that time to go make money.” So that’s where I would probably spend most of my time. 

Eric Rosenberg:

Yeah, a lot of us have guilty habits. For me, I watched probably a few too many videos online and  occasionally I’m tapping on those fun games. But it’s okay to have a little bit of fun, but not too, too  much fun. We want to make sure we use our time well. That is really great advice. So if you are someone  who wants to start using credit cards for the first time, you’re listening to Deacon and you’re saying,  “Okay, I think this is something I can manage,” what are the biggest tips you would give to someone who  wants to use credit cards, who may have gotten bit in the past, maybe made a few mistakes in the past  and they want to go forward with a clean slate? 

Deacon Hayes: 

Yeah. The first thing I would say is try to go for something that has no annual fee to get started. You’re  not looking for something that has an airport lounge and that has all these crazy benefits. You’re just  trying to get your feet through the door and one fit out of not using credit cards back into it. The next  thing I’d say is make sure you have an available balance that’s low, right? Don’t risk everything. Don’t try  to get as much as you possibly can. I’d say 1000, $2,000. The idea is you’re just trying to get back in. As  you develop the habit of paying it on time as you get used to doing it, your credit limit will naturally  increase. 

The other thing I would do is I would hook up recurring payments to your credit card. So instead of using  it for variable expenses like groceries and entertainment and stuff like that, I’d hook it up to your Netflix,  hook it up to your cell phone bill, things that you have to pay no matter what. Keep it around three to  500 bucks depending on what your credit limit is. We talked about that 20, 30%. So if it’s a thousand  dollars under 300, if it’s $2,000 and under 600, and that’d be kind of where I would tell people to start. 

Eric Rosenberg: 

Yeah, that’s great. And I love how you mentioned automatic charges. There’s a bunch of automatic  subscriptions we pay every month. If we’re paying them anyway, we might as well automate it so we  don’t forget, but you can also automate your credit card bill. So what would you do if you’re the kind of  person who forgets to pay your bills on time and you’re worried, okay, let’s say I get this new credit card,  I want to get my little bit of cash back or whatever the benefit is. What can I do to keep from getting into  that credit card debt trap again? 

Deacon Hayes: 

Yeah, one of the best things to do is hook it up to a checking account and have it automatically paid  every month. Now, the one thing caveat I will say is you need to make sure that you have enough money  in your bank to cover it, right? Because the last thing you want to do is have an automatic payment go  through and then get overdraft fees from your bank, from everything that comes after that. That’s the  worst experience, where it’s like you’ll spend $10 at a convenience store and they’ll charge you $35  overdraft fee for everything that you do. So really automated if you can, make sure that you have the  money in your checking account to cover it if you do that. 

Eric Rosenberg: 

Yeah, that’s great advice. And if you’re listening and you use the pay active card, we can set up  automatic payments using that pay active account. And if you are running a little short on cash and you  know that payment’s coming, you can use earned wage access, EWA, to tap into a small portion of your  paycheck early, as long as you’ve earned it. Remember, it’s not a payday loan, it’s something for only  money you’ve already earned. So that’s a great one to keep in mind.

So I have one last question. We’ve tapped on the idea of credit card rewards a little bit. I know you and I  as friends have talked about credit card rewards and how we like to use them ourself. So could you just  tell us a little bit about the two main categories of credit card rewards and what kind of person might  want to look at each of them? 

Deacon Hayes: 

So the two main ones are going to be cash back rewards, which are the most common, and then travel  rewards. And those are the ones that I use just because with kids and family and airplane tickets and  hotels and all that kind of stuff, it adds up fast. But if you’re just getting started, I think cash back  rewards is a great place to start. There are places that pay one and a half percent. I think some, you  probably know this better than me, 2% for purchases in different categories, 3% in different categories.  So look at what areas that they’re offering those rewards in and where you’re willing to spend and be  consistent and make sure that you can pay it off on time. And I would say that the cash back rewards is  the great place to start that. 

The one benefit that I will say about travel rewards is they typically will give you a multiplier above the  cash back. So maybe you get one to one for cash back and you get 1.25 for travel, meaning you get 25%  more to go towards travel and you’re like, “Oh, that’s a nice added bonus.” But if you’re not traveling a  lot, then cash back’s the way to go. 

Eric Rosenberg: 

Absolutely, yeah. Something I always like to think about when I’m talking to friends about what kind of  credit card rewards that’s best for them, cash back, a dollar’s always worth a dollar. So if someone gets  confused or overwhelmed or thinks, oh, I’m not sure if I’m going to travel that much, it’s always okay to  get cash back because it’s cash back, right? It’s money you could do whatever you want with, including  paying down your bill. 

So speaking of paying down your bill, we want to also mention budgeting. Budgeting is a really  important part of using credit cards and managing your finances in general, whether you’re using a debit  card or a credit card or even old-fashioned cash. So what would you say to somebody to take their  budget and get it set up in a way that they won’t get into the trouble with credit cards we were talking  about a couple minutes ago? 

Deacon Hayes: 

The first thing is if you haven’t done a budget in a while, revisit it, right? Put it pen to paper and say,  “Hey, has any of my expenses changed?” And I don’t know, for me, groceries has gone up crazy, even  housing for a lot of people now because of higher interest rates and people raising rents. And so really  revisit that budget, have a clear picture of where you are currently. 

If you’ve already done that, then what I’d say is it’s important to do, at least once a month, check in with  your budget to make sure you’re staying on track to the goals that you want to achieve. It’s very easy to  forget about it or to not do it because you’re like, “I don’t want to look at the numbers.” But really that  check-in is kind of an opportunity to change course, right? To say, “Oh, I’m doing great,” or, “Maybe I’m  not, and maybe I can cut these recurring expenses,” or, “Maybe we can go eat out twice less a month.”  So you can make the course corrections on a monthly basis so that you can have the extra cash to pay  down your debt and not have to worry about paying that extra interest. 

Eric Rosenberg:

Yeah. And something I love about when you have a good budget in place is when you go out to make a  purchase, you can do so knowing you can afford it. I don’t like to look at it as something that restricts  where you spend. It’s something that gives you permission to spend on the things that are most  important to you, and you’ve already budgeted for something in your financial plan. So let’s say gas,  groceries, maybe a monthly trip out to a favorite restaurant or the movies or something like that. You  can look at your budget, say, “I know I have the money,” and then if you use your credit card to pay that,  you’ll be able to pay it back in full by that monthly due date, so you’ll never pay interest. So that’s a  great way to tie in your budgeting to your credit cards. But if you’re nervous, you can always still use a  debit card. You don’t have to use credit cards. There’s no rule, but it’s something that I know Deacon  and I like to take advantage of in our finances. 

Are there any last words you have to say about credit cards for somebody who’s trying to dabble in and  get started or turn around a tough credit card situation regarding interest rates? 

Deacon Hayes: 

Yeah. One thing that, this is something that I did. So full confession time, Eric, when I was 18, I maxed  out five credit cards and I had to settle for penny on the dollar. And that’s part of why I became  interested in personal finances. I’m like, “Okay, I didn’t do this right. Let me figure out how to do it  right.” And so, one of the things that I did was get a secured credit card. So if you’re in a really tough  spot, a lot of times banks won’t give you a credit card. But if you do a secured credit card, it’s where you  take your own cash up against that credit card, so let’s say 300 bucks or 500 bucks. Now it’s not a risk to  the bank it. They’re securing the credit card with your cash. So basically you just pay it off like you want  a regular credit card, and at some point that secured card becomes unsecured, meaning that you get  your cash back and then you’re legit just borrowing from the lender. 

So that’s just one other thing I’d say, hey, if you’re really in a tight spot, have bad credit. That’s another  option to choose to build your credit back up and get yourself in a better financial position. 

Eric Rosenberg: 

That’s a great tip, and thanks for sharing that story. I know it can feel like a bit of a zinger going back and  thinking about the times we’ve made financial oopses, and I’ve definitely done it myself, so thanks for  sharing your history there. And so if speaking of your history with personal finance, you have a great site  of your own, would you share with the listeners where they might find you and connect? 

Deacon Hayes: 

It’s called wellkeptwallet.com, and it’s just where we shared our journey of paying off our debt. And I  have a free money masterclass for anybody that wants to sign up. It’s five days of just everything from  paying off debt, making extra money, et cetera. And we’re glad to help any way we can. 

Eric Rosenberg: 

Right. Well, thank you so much. This was great advice, extremely useful stuff. Listeners, be sure to take  advantage of everything we learned from Deacon today and check out his site. It’s a great resource.  Thanks so much for taking the time to chat with us today. We’ll talk to you later. Thank you. 

Deacon Hayes: 

Thanks, Eric.

Eric Rosenberg: 

I hope you enjoyed that chat with Deacon as much as I did. Now at the end of our discussion, we talked  a bit about budgeting. Don’t forget that if you have a pay active account, you get access to budgeting  tools for free that help you keep track of your spending and income every single month. That helps you  get ready for those credit card payments or plan how you want to get out of credit card debt with bigger  payments. Whatever your financial goals are, you set them in your budget and that’s very easy to do in  the Pay Active app. And if you haven’t already, make sure to go to the Apple App Store or Google Play  Store to download the Pay Active app. It’s free to download and get started and can help put you on the  track to living the life you’ve earned. 

Thank you so much for spending time with us today. We’ll catch you next time. Make sure to hit that  subscribe button and share the show with a friend so we can help more people improve their finances  together. Thank you. Have a great day. Bye-bye.