By FPA member Catherine M. Seeber, CFP®
Last Updated: May 15, 2012
An April 2012 study by the FINRA Investor Education Foundation(1) shows that women with low levels of financial literacy are more likely to engage in costly credit card behaviors than men with low financial literacy. Interestingly, there was no disparity in credit card behavior between men and women with high levels of financial literacy.
Does your financial intelligence need a boost? Below are some tips to help change costly behavior patterns and, hopefully, close the gender gap in credit card debt.
Learn how to “shop” for credit cards – The study found that women tend to pay half a percentage point more in credit card interest rates than men. Credit card evaluation sites offer easy ways to compare offers. Try www.creditcards.com, www.indexcreditcards.com or www.creditcardguide.com.
Don’t forget to include expenses in your budget – Budgeting is a basic tenant of personal finance. By itemizing and categorizing credit card expenses, you should be able to determine where “overspending” occurs. If necessary, curb your spending to keep expenses within your budget.
Avoid department store savings incentives – Let’s face it, women visit department and specialty stores more frequently than men. Temptation occurs when the salesperson suggests a discount on your purchase if you apply for a credit card. If you can’t pay off your credit card balance when it falls due, was the extra 10 percent savings you received during check-out really worth it?
Understand credit limits – Credit card companies are known to automatically increase your credit limit to entice additional usage. Pay attention to the limit shown on your statement, and call your credit card company to reduce it to a reasonable amount. BEWARE, don’t reduce it so low that it brings your balance too close to the limit. Aim to keep the balance on your credit card account no higher than 35 percent of the credit line. Statistics show that the lower your debt, compared to your credit limit, the better a credit risk you are. (And the more self-control you have.)
Periodically run your credit report – A bad credit rating means higher interest rates. Your credit report contains detailed information about your credit card balances, credit limits, account types, account statuses, and payment histories. Check it for accuracy, and report any discrepancies.
Pay on time and more than the minimum due - Look over your next credit card bill and calculate how long it will take to pay off your balance if you make only the minimum payment. You will be shocked to see how much you will pay in interest. When you make the minimum payment, you end up paying more money in finance charges. You could save hundreds, possibly even thousands, in finance charges by increasing your monthly credit card payments. It would take more than 20 years to pay off a $5,000 credit card balance (at 14 percent percent APR) when you only make minimum payments.
Learn when to use your credit card – If you can’t afford it, don’t buy it. If you find yourself unable to pay off balances, exercise restraint and only use credit cards for emergency purposes. When it comes to financial literacy, ignorance can be expensive. Lack of financial literacy results in lower standards of living, hinders prosperity, and can dramatically affect the stability of our own nation’s financial health. Male or female, everyone needs basic financial knowledge and skills to manage their monetary resources effectively for a lifetime of fiscal well-being.
(1) FINRA, the Financial Industry Regulatory Authority, is an independent regulatory organization empowered by the federal government to ensure that America’s 90 million investors are protected.
FPA member Catherine M. Seeber, CFP®, is a Principal and Senior Financial Advisor with Wescott Financial Advisory Group, LLC, an SEC-registered, fee-only investment advisory and wealth management firm. Cathy also serves as the President of the Financial Planning Association (FPA) of the Philadelphia Tri-State Area Chapter.