3 things to never do with a credit card

Summary

The video explains how credit cards can turn borrowing into a costly cycle of interest and fees, and outlines ways to limit those costs.

Choosing and using a credit card

• Choose a card based on borrowing costs, not rewards. Cash back, travel miles, and discounts are most useful to people who pay their full balance each month. A cited survey found that 46% of American cardholders carry a revolving balance; for them, interest and fees often outweigh rewards.
• Compare APRs. APR is the annual cost of borrowing, but interest on most cards accrues daily once a balance is carried past its due date. In the video’s example, a $1,000 revolving balance accrues about $29 in interest over a month at a 35% APR, compared with about $15 at 18% APR. With $50 monthly payments, the higher-APR balance takes seven months longer to pay off and costs an additional $325.
• Be cautious with introductory APR offers. Check the fine print for fees, late charges, and the higher default APR that may apply after the introductory period.
• Don’t rely on minimum payments. They generally cover interest and fees, plus only a small portion of the principal. Paying just the minimum on a $1,000 balance can take over 18 years to clear.
• Pay the full statement balance monthly when possible. This is presented as the best way to avoid interest and benefit from rewards. Carrying a balance while making new purchases can cause those purchases to accrue interest immediately; residual interest may also appear after the balance is paid.

Repaying existing debt

A balance transfer to a lower-APR card may help, but check the transfer fee. When paying down multiple cards, direct extra payments to the highest-APR card first, regardless of its balance, and work through the cards one at a time.

Credit card debt outstanding worldwide is described as exceeding trillions of dollars. The video also mentions Walter Cavanagh, who reportedly opened over 1,400 cards.

Assets and instruments mentioned

Credit cards, revolving balances, credit-card rewards, APRs, and balance transfers. No stock tickers or investment securities are discussed.

Disclosure and sources

No explicit “not financial advice” disclaimer appears in the subtitles. No presenter is identified. The video is from TED-Ed and refers to an unnamed survey and unnamed financial experts.