by Stacy Francis, CFP®, CDFA
I went for a run in the park this morning, with my favorite workout pal. Thank goodness she is a good friend as I don’t run as fast as I used to now being pregnant. Anyways, she surprised me mid-run by asking whether it was really necessary to keep six months’ worth of income in an easily accessible emergency fund. Wouldn’t it make more sense to put her money in retirement accounts so that she could cash in on the tax benefits, and then do a cash advance from one of her credit cards if she got into trouble?
This got me thinking about credit cards, and how even though almost everyone uses them, few have a real perception of how they work. Below are three common myths about credit cards, starting with my running buddy’s.
- Doing a cash advance from your credit card is like taking cash out of the ATM. No. Rates and fees are sky high for this transaction. Avoid it.
- In times when money supply is short, you can stick to the minimum payments on your credit card balances. Again no. Not only will you waste horrendous amounts of money on interest, but paying the minimum balance only will drag down your credit score.
- It’s OK to take your cards to the limits. Third time no. This is OK only if you don’t care about your credit score, and don’t mind spending your money on interest instead of investing it – or enjoying it.