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Managing Credit Cards with Sara Rathner

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“Any time you are not the initiator of the conversation, red flags should be flying.” - Sara Rathner Click To Tweet

Long gone are the days of companies giving away coolers on college campuses when students would sign up for high-interest credit cards. Unfortunately, there are still sneaky promotions, fine print, and ways these companies take advantage of unsuspecting customers. 

Our guest today is Sara Rathner. Sara is a NerdWallet travel and credit cards expert. She appeared on the Today Show, Nasdaq, and CNBC’s Nightly Business Report and has been quoted in Yahoo Finance, Time, Business Insider, and MarketWatch. She’s held a total of 23 credit cards using travel reward points to see the world on a budget. A proud Northwestern University alum, she also has a certificate in financial planning from Boston University. She’s here today to talk about personal finance scams and how to manage your credit cards.

“I really want finances to be empowering to people, not scary. When you feel empowered you make good decisions.” - Sara Rathner Click To Tweet

Show Notes:

“You want to find a card that provides greater value than its annual cost.” - Sara Rathner Click To Tweet

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Can you give us a little background about how your involvement with personal finance began?

Yeah. Hi, I’m Sara. I've been working in the financial technology industry for most of my career. Now I focus on credit cards, travel, debt repayments, even personal loans. That’s my area of expertise, but I love talking about all things personal finance. It’s a real passion of mine.

That's good because I've gotten to the point where I’m excited about finances. In my college days, probably like most people my age in our college days, we racked up tons of debts because the discussion of personal finances was never an enjoyable subject.

No. I’m actually like that friend that you ask over a drink like, “Hey, I need to move my 401k now that I've switched jobs. What do I do?” My brother-in-law texted me this morning to ask me about brokerage apps. I'm just that person. People reach out to me. They ask me questions. Hopefully, I give them answers that aren’t intimidating because that’s something that I strive to do in my professional and my personal life. I really want finances to be empowering to people, not scary. That's really what I am for because when you feel empowered, you can make really good decisions. They don't have to be complicated decisions, but even the small, kind of easy choices can make a huge difference in your life over a long period of time.

The interest rates compound and unpaid-off bills can escalate very quickly.

Absolutely. Interest rates can compound in your favor, too. It could be as simple as switching your money from a savings account that barely earns any interest to one that earns a high yield. That could really add up over time. It's a relatively simple move to make and it can be done completely online from home without even talking to a person.

That’s really cool. Let’s start at the beginning of people’s life spans and work through. I know when I was in college, I think the laws have changed since then, but in my freshman year of college on campus, there were booths set up by Citibank and Capital One, maybe it wasn't those companies. Discover saying, “Hey, fill out this paperwork, give us your Social Security Number, and we’ll give you a cooler for your beer, we’ll give you a T-shirt, we’ll give you a frisbee, we’ll give you a hat.” By the end of the day, everybody had four credit cards.

Yeah. I saw that in college, too, but that changed in 2009 with the Card Act that was started in the wake of the Great Recession. One of the big changes was that if you are under 21, you have to have either a co-signer on your credit card or you have to have your own source of income. That really protects young adults. I agree with that because you go to college, you might not have ever used a credit card in your life, maybe your parents didn't really explain to you how they worked because they themselves didn't truly understand it or they themselves didn't use credit cards, and you are really susceptible to this marketing. It sounds so easy, it sounds like free money. It's not. There's nothing free about credit cards.

That's exactly the way I viewed it. I was like, “Oh, I’ve got a $500 limit. That means I have $500 of cash in my pocket. That stuff that I was going to wait till next month to buy, I'm going to go out and buy it now.”

Exactly. Especially now with so many Americans going through some financial difficulties because of the pandemic, there are times where your credit limit can really help you in a bind. It can be kind of like a last resort emergency fund if you've exhausted your other options. But if you're using a credit limit just to buy fun stuff, and then going into debt, and then you don't have the cash on hand to pay that bill back, that's when you can get into a lot of trouble really fast.

Exactly. Are there things that we should be watching out for even if I understand the concepts of a credit card, things that we should be watching out for when applying for credit cards? What type of credit card? Do I want rewards? No rewards? Is there an annual fee? Is there not an annual fee? What happens if I miss a payment?

Those are all things to look at and you can find all that information in the fine print of every credit card. I always recommend people to read it. I know it's a lot like homework. It’s a lot of homework. It's not fun. It’s not exciting. Maybe I find it exciting but I do this for a living.

Read the fine print and know the fees.

Familiarize yourself with this information and you can find it before you even fill out an application for the card. That's publicly available information. Read the fine print, understand what the card will cost you, annual fees, late payment fees, other types of fees that might be associated with the card like foreign transaction fees if you travel. Also understand if the card offers rewards, how the program works. Do you get some sort of sign-up bonus after the first three months of having the card? Do you get ongoing rewards for your everyday spending? Then how easy is it to redeem those rewards and what can you redeem those rewards for. You want to find a card that provides greater value than its annual costs, and you want to find a card with rewards you’ll actually earn and use. Rewards don't mean anything if they’re too difficult to redeem and you just let them sit there.

I assume that lots of people in the middle of a pandemic are switching to actual cashback versus airline miles because it’s not like anyone’s going to be traveling next week.

Yeah. We’re seeing a lot of switches to more of a cash-back strategy. Another thing that we are seeing out of the credit card industry is changes to terms of travel credit cards. Cards that were traditionally geared toward frequent travelers—airline miles, hotels, free lounge access at airports, free checked bags, priority boarding—all those benefits make no sense when you don't ever leave your house, but we are seeing them add new ways to earn and redeem rewards on expenses like restaurant takeout, groceries, even streaming services. These credit card companies are quickly acting to meet people where they are right now.

There’s definitely like the good side of credit cards in terms of being able to leverage them to your advantage if you're not carrying a balance. What are the things that people need to be watching out for if they're carrying a balance? And explain what carrying a balance is.

Yeah. The way that most credit cards are are revolving credit accounts, which means that you have a monthly credit limit. Let's say $1000, a nice round number. If you spent $500 in that month, you get a bill at the end of the month for $500. If you pay all $500 that you owe, that's it, you’ve gotten your debt back down to zero. Then the next month, you can begin using your card again.

You could also pay less than $500. The credit card will give you a small, minimum amount, a percentage of what you owe, maybe $50. Let’s say you pay that $50, you carry $450 of a remaining balance into the next billing cycle to the next month. That's credit card debt, and that remaining $450 begins accruing interest.

Here's where credit cards get even dicier. Unlike an auto loan where you borrow one sum of money, you make a monthly payment and each month, your balance goes down, down, down. Credit cards allow you to pay the minimum, carry the balance, but then charge up to your credit card limit again in the next month. So even though you are sitting on $450 credit card debt, you can charge another thousand, and then still make the minimum payment. Add another couple hundred dollars onto that $450 debt. Meanwhile, you're paying 15%, 20%, 25% interest which is high, very high, and it balloons really fast. You can keep doing this indefinitely.

That’s scary.

It is. Now, if you pay your bills every month, then you don't have to deal with any of this. It’s almost like a tab at a restaurant. Like you use the card, you make payments, and that's it. There is no interest.

When you're dealing with rewards credit cards, if you are trying to earn cashback or travel rewards, you get more value when you don't carry a balance and you don't pay interest. The interest rate is so high that it wipes out the value of any rewards you would even earn. It's not about chasing rewards if you have credit card debt. It's really about finding a card that has a lower interest rate so you can save on interest while you’re paying down your debt.

I remember, not necessarily a credit card, but I remember buying a couch once and they said that you can buy it on credit and there is zero-interest for the first year. That's awesome. I won't start accruing any interest until one year out. I started looking into the fine print on it and it turned out that well, zero-interest for the first 12 months, assuming that you pay the entire balance off and one day into the 12-month, they retroactively charge interest for the entire 12 months at like 30%.

That’s so common. That's very common with those store lines of credit where you’re buying a major appliance or piece of furniture, and let’s say you pay half the balance off in the first 12 months, then you intend on paying the rest of it with interest later on. They’ll charge interest to the whole thing, like you said.

Credit cards function a little bit differently. A lot of credit cards offer 0% interest on either new purchases or balance transfers, which basically transfer your debt from another card. Some cards will offer even a year or more of no interest. They typically won't charge interest retroactively on the entire amount. If you have a balance that remains even after that promotional 0% rate ends, you’ll only owe interest on the remaining balance. Not the whole thing.

That’s beneficial if you are using a card like that strategically to save on interest while you pay down a debt over a long period of time, but the interest rate is still going to skyrocket once that promotional period ends. That’s something you really want to watch out for.

Is that something you generally see on those types of cards that offer the zero intro promos that at the end they go kind of skyrocket back up to the 27%, as opposed to a card that might have a 15% interest rate but no sign-up bonus?

The rate that you’ll see the card increase back up to can vary. Credit cards charge variable interest rates. What they assigned to you in the fine print or offer a range, maybe 14.99% to 24.99% depending on your financial situation. You need to qualify based on your financial history for one interest rate or another. Whatever you’re assigned is the interest rate you’ll pay when that promotional period ends. Obviously, that interest rate can change over time because it is variable. It’s adjusted by economic conditions, as well as your own conditions and it is negotiable to an extent.

If you, for example, have been really good about paying your credit card bill on time or you even got a huge raise at work and so your financial picture has completely changed, these are all things you want to talk about with your credit card company because it can make you eligible for better terms overtime.

Are there things that people should watch out for once they get to that point where they maybe missed a payment, and maybe they don’t qualify for some of the more well-known cards, other gotchas that they really have to watch out for?

Missing a payment can impact your credit score.

Missing a payment is huge because many cards will charge a late fee if you're more than 30 days late, and a late payment can also really hurt your credit score. Sometimes by 100 points or more overnight. That's huge. You want to pay your bills on time, watch out for that due date, and many cards actually allow you to pick your due date so you can line it up with your paycheck. You know you have money in the bank to pay your credit card bill that month. That makes it a lot easier for a lot of people.

Are there other types of—I don’t want to say debt instruments, that sounds a little too technical—finance issues that maybe younger people run into, payday loans, things like that?

Anytime you have relatively easy-to-acquire debt, easy-to-acquire financing, it makes it very tempting, because at the time, it feels like free money. “Okay, I can finally afford the thing that I need or the thing that I want.” But you always want to know how you will be affected by that decision later on because the thing that you need or you want now is great, but if it causes long-term financial struggle, oftentimes, it just wasn't worth it in the first place.

I'm a huge fan of saving up for things just the old-fashioned way. Have cash in the bank to pay for the big-ticket items that you need or you want. We were chatting earlier, I'm replacing all the windows in my house. That is not cheap. My house was built in 1917, so the original windows are no longer in good shape, they really need to be replaced. This is something that my husband and I save for because it's going to cost about $15,000 all told. We’ve done it in several batches so we didn't have to have all $15,000 available at the same time and we also are picking a credit card that earns the highest rewards rate we can get for that type of purchase so we can get a little bit of the money back. We are instantly paying that credit card bill off. We're not sitting on this multi-thousand dollar debt at the end of all of this.

When you're faced with a huge purchase like that, I say save up. Save up over time. It takes longer, you have to live with the old windows for a little bit longer. It's going to be a little drafty but once you know you have the money in the bank, it is so much more satisfying, so much more comforting to know I can afford to do this thing that I really have been wanting to do, and I've been needing to do for a long time, and I do not have to become stressed of debt to do it.

We’ll make a little transition here that a lot of people would love to be in the position of I've got $10,000 to do this home improvement. We’re in the middle of a pandemic and lots of people have lost their jobs and are struggling like, “Okay, which bill should I pay, what's going to hurt me the least to not pay? How do I access some of these assistance programs?” I'm sure there are a bunch of scams that you heard about that go along with that leverage these assistance programs. Let’s talk about that.

We’re seeing some really big scams pertaining to government assistance programs that have come about as a result of the pandemic. Small business loans are big, obviously, stimulus payments and unemployment insurance. You're having a lot of people who are dealing with these sorts of things for the very first time in their lives. Imagine you've never lost your job before and because of the pandemic, you got laid off. You're applying for unemployment for the first time ever and it's confusing.

The website keeps crashing because there's so many other people applying at the exact same time. It can't handle the traffic. You have to get a pin number, you have to deal with the state and with the federal government, and it's so, so, so convoluted. Then somebody out of the blue calls you and says, “I can make this work for you. I'll take care of it, just give me your information. For a $50 fee, I can make it so that you are guaranteed to get the full unemployment benefit that you’re due.”

That’s actually interesting because I got a phone call about two weeks ago, and I almost never pick up phone calls from numbers I don't recognize. Sometimes because I like to talk about scams, I occasionally pick it up because I want to hear what the latest scam is. I pick up the phone and, “Hey, this is Chris.” “Hey, can I talk to Julie?” And I’m like, “There’s no Julie here.” “She gave me this number to follow up about the pandemic assistance program and that she was facilitating my payment.” I'm like, “You know what? I hope you dialed the wrong number. It was an accidental wrong number because it sounds like you might be a victim of a scam.” He’s like, “How could I be a victim of the scam?” I’m like, “Do you know who this person is? Did you meet them in a government assistance office? How did you run across this person?” Then he got really cagey and ended up just hanging up on me.

You might have saved that guy’s life right now. Isn’t it funny that he calls you by accident?

Either I saved him some money, or he realized he lost some money. I don't know whether he'd actually paid this woman some money yet. Obviously, if I’m getting a random phone call like that, this is a real problem. How are people going to know there are programs out there that have people that help facilitate them? Do people have to go directly to government agencies?

With things like this, you want to go directly to the government agencies and they have help available should you have questions as you go through application processes. You never want to go through a random third party who calls you out of the blue. That's your first sign that something is wrong. If you get an unsolicited phone call or email, the email might look so legitimate, it has sba.gov’s logo at the top, it looks so real. It’s got this link you need to click on, just send your information, hit send. It's not real, and this happens all the time.

Any time you are not the initiator of the conversation, a red flag should be flying for you. If you have a question and you go on to irs.gov, sba.gov, you find their contact information, you call or email them, then you're doing the right thing, then you’re actually reaching a person who is there, works for the agency, and can actually give you help. You want to be the initiator of those conversations. Somebody calls you out of the blue and asks your social security number, hang up the phone immediately, immediately.

What if you're going through a program, you applied for something, and you get a phone call and they say, “Hi, I'm so-and-so from—let’s keep it consistent—SBA, you’re a small business. Do you know if it really is the SBA calling you? How would you verify that as being the recipient of the call? You might have initiated something but it can also be a scam.

That actually happened to me once with one of my credit cards. I received a phone call. He said, “Hey, I'm calling from this credit card company. I have a question. I have some things I need. I need to talk to you about your credit card account. Can you verify your credit card number for me before we proceed?” I was like, “Absolutely not, because I didn't initiate this call.” It turned out it was legitimate. It was really the credit card company calling me and they said that's fine, hang up and call the number on the back of your card.

I did and then I got another person and I said, “I just received a phone call from somebody claiming to be you. I just want to know if that was real.” They said, “Yes, it was.” Then we proceeded with the phone call. If you get something like that, if you applied for unemployment and then somebody from the unemployment office in your state calls you, it's totally fine to say, “I didn't initiate this call. I don't feel comfortable sharing my information, but I'm going to get your phone number. What's your name? What's your direct line?” Hang up, call the main number, see if you can get back to the same person, or get to another person and say, “Hey, were you trying to call me?”

You might have to sit on hold for a little bit because you're no longer directly connected to the person who called you, but it's so much better to sit on hold for 30 minutes and know that your call is real than take the call immediately and give the stranger your personal information because you’re going to spend a lot more time cleaning that mess up.

Like you, I’ve had that same call, “Hey this is so-and-so from XYZ Bank. We think there’s fraudulent activity on your card.” I thought for a second. I'm like, “Okay, thank you very much. I’ll call you back.” It was interesting because the person was like, “Okay, that's a good thing to do.” I know that if it was a real scammer…

They would have hung up on you.

They would have been like, “No, no, no, you need to talk to me right now. This is really urgent.” They would have applied all those kinds of pressure tactics, but the fact that they didn't do that was almost a reminder of, like, this is a legitimate call, but I'm still going to call the number on the card and not them. It was interesting to see that moment that their behavior was consistent with what I would really expect from a bank, like, “You're right not to trust me.”

Absolutely.

Are there other programs? We talked a little bit about the pandemic and really being aware of who you’re interacting with. Are there other things that people should watch out for on their personal finances?

I've known people who’ve gone through this. It’s really common to sell things on Craigslist, on Facebook Marketplace. Those sites are mostly filled with good, well-intentioned people who are just looking to buy and sell items to people in their city. That's fine. I've bought and sold items on those platforms myself, but there are a lot of scams there, too.

I know somebody who fell victim to this and lost about $1500. What happened with them, they were trying to sell an item on Craigslist and somebody reached out to them and said, “I want to buy this for my son who’s moving to your city, so I need to hire movers to pick the item up and then bring it from your house to my son's new apartment.” Then they sent them a cashier's check for way above the asking price and said, “That's fine, just transfer money through Zelle or Venmo to this other number and that’s the mover. Once they're paid, they’ll come and pick it up.”

If you are doing a local sale, it can be best to ask for cash and meet in a public place.

The cashier’s check was not real, and the victim of this scam transferred a lot of money to some random person thinking the cashier’s check is pending, I’ll receive the money and I'm only going to send out part of it. Then they got a notification from their bank that it wasn't real. There is no recourse in those situations.

You lose twice. You’ve sent them some of your own money and someone picked up the item.

Nobody picked up the item.

I’ve heard of ones where someone actually picks up the item.

I have not. Thankfully, it didn’t go that far, but then the scammer got the victim’s address. Now they have their home address, they have a connection to their bank account, and they have $1500 of their own money, and you have nothing. It might have been maybe if you’re lucky you sold the item you're trying to sell but you're out way much more money than you're ever going to earn on that item. It's a pretty common scam.

It’s funny. I’ve sold a number of things on Craigslist, and I was very clear upfront with anyone. I will only take cash. They are items that a business would purchase. “Will I need to do a company check?” I’m like, “No, cash only and we're going to meet in the parking lot in front of the Office Depot.” They’re like, “Why?” “Because I don't know you. I don't want you showing up at my house.” A couple of people were like, “I can't do it then.” I'm like, “Okay, that's fine, because I want cash. I want to be out in public. I want to be during the day. I don't want you knowing where I live because I have no idea who you are.”

I always try to have another person with me. I don't like to be alone when I'm doing that. Bring a friend or somebody along with you so you are not by yourself, and you’re right to meet them in public during the day. It's much more important to be careful and seem a little bit paranoid. You might annoy a stranger, but they’re a stranger so what does it matter? Their opinion does not matter.

I’ve heard too many cases of these buy-sell arrangements, meeting somewhere, and one person shows up to buy an Xbox or whatever and ends up pulling a gun and stealing the person’s phone and their wallet. It’s just an opportunistic…” I may just be able to get you in an isolated place and get something from you. I don’t even care what you're selling. I want your wallet and your phone.”

They know you're holding a lot of cash because you might be buying, say, a $300 item from them. You get $300 from the ATM, you got it in your wallet, and now you're in their house. I think after today we’re just going to make people too afraid to leave the house.

Well, I get it. With coronavirus, I don’t know, they don’t even want to come over to my house.

Everybody stays home. If you leave the house, somebody will steal your cash. So stay home, wash your hands, wear a mask.

It’s too funny. We’ve talked about assistance programs, we’ve talked about credit card scams, we’ve talked about Craigslist scams. It was interesting, I was talking with a friend who's going through a challenge with his finances and he's gotten to the point where he’s stabilized and he's not missing any payments, he’s on top of stuff and he’s trying to fix his credit. I heard about this company that—I’ll make up a number here because I don't remember the exact numbers—for $100, they will loan me $1000. They won't send me the $1000 but then they’ll use that money plus what I gave them to pay off the loan so it will help my credit.

It was so funny, I was driving the other day. Sometimes you’re waiting at an intersection and there are those handwritten posters stuck in the grass. There was one that was actually, “$39 will fix your credit in two weeks or less, guaranteed.” It was a handwritten sign, and if you can’t even afford to print out your sign, I do not want you trying to fix my credit.

There are so many different types of scams when it comes to credit repair, but there are so many other legitimate organizations like nonprofit credit counseling that can help you if you're in a bind and you need assistance. You can also work with financial coaches or financial advisors of some sort. Honestly, a lot of credit repair can be done on your own. There are so many free resources online like NerdWallet. We have tons of articles about how your credit score is calculated and what actions and behaviors can help you increase it over time.

The NerdWallet app will also track your credit card activity and suggest specific target waves. Like, “Hey, a lot of your credit card accounts are pretty new. You might not want to close them for a while because then that will help your accounts age nicely so you can increase your credit over time.” There are lots of free resources out there that can help you and there are lots of things you can do yourself. Again, if people are stressed out, it's easy to try and find the quick-fix but it does take a couple of months of positive behaviors to show up on your credit report and therefore, affect your credit score. If you stick with it, you'll be rewarded.

I think that is a great way to start to wrap things up here. It seems to be the negative credit things impact us immediately, but the positive ones come at a delay of several months, for some reason.

It’s kind of true with everything, isn’t it? Everything good is worth waiting for.

That is a great way. So if people want to learn more about you, more about what NerdWallet does, how can they find you? What can they get from NerdWallet?

You can find me on NerdWallet. NerdWallet is a really great resource. We are like your financial best friend. If you have a question about credit cards, banking, student loans, all sorts of different financial subjects, we have really great content and calculators, and tools that can help answer those questions. Definitely check us out, check out our app. If there’s time, if you think you've been a victim of a scam, I definitely want to let your listeners know what they should do.

Absolutely.

You can contact the business or agency that you thought you were hearing from and just let them know, “I got this weird email. I got this phone call.” Sometimes you can forward the email to their fraud department so they can investigate. You can also go to the Federal Trade Commission's website—ftc.gov/complaint–and that site lists really detailed ways that you can report different types of scams that you’ve heard of. If you think you've been a victim, freeze your credit, check your credit report, make sure every account listed there is one that you opened yourself, because if not, you want to report that to the credit bureaus and get that ball rolling so you can repair what's been broken.

That’s great advice. One follow-up question: Do you recommend identity theft monitoring, identity theft insurance?

Some people like to pay for it. I personally don’t. Honestly, you can check your credit report for free. You should never have to pay to get your credit report. You can get it for free on the NerdWallet app, you can go to annualcreditreport.com. Once a week you can get free credit reports from each of the main bureaus. You can do a lot of the work yourself, and I would recommend getting into the habit of a couple of times a year, just checking, keeping your eyes on things and if you see anything unusual that's when you act.

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