Money Management

Read Dave Ramsey’s advice before you pay your next credit card bill. 

When it comes to credit cards, it’s important to use them wisely so you can benefit from the cardholder rewards they provide but not end up getting stuck with high interest charges that can come with carrying a balance.

Unfortunately, finance expert Dave Ramsey warned some people make a big mistake with their cards that can end up costing them. Here’s what the error is and why it can be such a big problem.

Are you making this costly credit card error?

The error Ramsey warned about has to do with how you pay your credit card bill when your statement comes.

“Most credit cards also have a minimum payment,” Ramsey explained. “But be careful not to confuse that for paying your balance in full. While paying the minimum payment may technically keep you in ‘good standing’ with the credit card company, you’ll still get charged interest on whatever you didn’t pay.”

See, your card’s bill will come and it will specify how much you must pay. You may assume that as long as you meet that requirement, you’re all good and won’t owe anything extra. But that’s definitely not the case. If you pay only the minimum, you could end up with a huge balance carrying over to the next month — and would have to pay interest on that entire balance.

In fact, card companies typically set the minimum payment very low — often to around 1% to 5% of the total outstanding balance, depending on the card. If you only pay the minimum, most of the payment will go to interest rather than to paying down the principal balance. The result of this is that your balance will remain high, you’ll pay a huge amount of interest, and it will take you a very long time to pay the card off entirely.

What should you do instead?

Instead of paying the minimum balance on your card, ideally you’ll pay the entire statement balance. That means paying off every dollar you charged on your card over the course of the billing cycle.

If you pay your balance in full in its entirety, you won’t owe any interest at all. Your card company will have given you an interest-free loan from the time you charged the purchase until the date your payment is due. And you will ideally have earned rewards on top of that amount. So, you’ll get all of the benefits of being a cardholder without that downside of high interest costs.

Ramsey warns some people have a hard time paying their full balance, which is why he suggests not using cards in the first place. But, if you simply keep track of what you’re spending on your cards and make sure you aren’t going over the amount you budgeted that you can pay back in full, you shouldn’t run into this problem. You’ll have plenty in your bank account to pay your entire balance down and you’ll get to walk away with the bonus rewards and credit-building benefits your card offers.

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This advice might surprise you. 

If you’re hoping to improve your financial situation over time, there may be lots of tasks to check off your to-do list. Depending on your current reality, for example, you could aim to put more money into your savings account. Or you could be focused on making more than the minimum payments to help your credit card debt disappear ASAP.

While there are many specific goals you may be working toward, there could also be some general steps you need to take that could make a really big difference in how effective you are at building wealth and achieving all of your desired objectives with money over the long term.

For example, Ramit Sethi, author of I Will Teach You to Be Rich, has some great advice everyone should follow that can help them improve many aspects of their financial lives. Here’s what it is.

Do this to get better about money in 2023

No matter what you’re hoping to accomplish in your own financial life, Sethi advises doing one simple thing that could help you be more successful.

“If money is important to you, find a community where you can push each other to get better in 2023,” Sethi advised. He gave this tip in response to a Twitter follower who commented on how fortunate they were to have a community with shared values that helped them stay on track toward their financial objectives.

Why is Sethi’s advice important to follow?

Sethi’s suggestion to find a community of people with shared values isn’t the traditional advice you might hear from finance experts. Instead, experts often focus more on the specifics of different goals, such as in what order you should pay down debt or whether you should pay with cash to spend less and avoid the risk of debt.

But it can make a much more profound difference when you take a big-picture view of your financial situation — and it’s advice that could pay off over the long term and affect every aspect of your efforts to build wealth.

See, the behavior of people around you can shape your own behavior. If you are part of a community of people who always spend every dollar they get and who don’t worry much about saving for the future, you’re more likely to see this as normal behavior — and you’re more likely to engage in it yourself. In fact, you may not even realize there are other alternatives out there if you live and work with people who behave this way.

But if you intentionally seek out and become part of a group where everyone is focused on accomplishing financial goals, you’re going to be more motivated to do that — and you can benefit from the collective knowledge of that group. You can share your own progress to help hold yourself accountable, and you can also see what techniques others are using that you can incorporate into your own efforts.

Having a community that pushes you to learn more, to do better, and to stay on track will be invaluable as you move through different goals because you can turn to them as a source of support. So follow Sethi’s advice and find your community this year.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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His advice could end up being a good solution for you and your partner. 

It’s an unfortunate fact that money tends to be a big driver of conflict among romantic partners. And that sort of conflict has the potential to escalate when you make the decision to combine your finances and open joint bank accounts.

On the one hand, it’s easy to argue that if you and a romantic partner are going to share a life, then it stands to reason that you might share your finances, too. And if you have bills you’re jointly responsible for, like a rent or mortgage payment, then wouldn’t it make sense to put your money into an account that you both manage?

Financial guru Ramit Sethi agrees that opening a joint bank account isn’t necessarily a bad idea. But if you’re going to go this route, it pays to heed his advice on how to best pull it off.

The right way to combine bank accounts

In a recent tweet, Sethi explains that the simplest way for you and your partner to combine accounts is to have a joint account where you pay your shared expenses — things like your property taxes, utility bills, and groceries. But then, Sethi says, you should also open what he calls a guilt-free spending account for each of you, where you can spend the money in that account however you please.

His solution really is a good one. Let’s say you’re someone who likes to spend money on clothing, but your partner couldn’t care less if they were wearing a $200 designer shirt or a $5 discount rack special from Walmart. It might bother your partner to see you taking $200 withdrawals from your joint account to buy yourself clothing. And that could lead to a series of arguments.

With Sethi’s solution, that doesn’t even have to be a conversation. That’s because you and your partner will each have your own separate bank account you can take withdrawals from as you see fit. So in the case of your designer clothing, your partner may not even have a clue as to how much you’re spending. And that’s okay, because that money is coming out of your personal pool of funds, not theirs.

A good way to keep the peace

The last thing you want is for a difference in spending habits to get in the way of an otherwise solid partnership and romantic relationship. Opening up a joint bank account to pay shared bills certainly makes sense. But it also pays to retain some financial freedom by maintaining separate accounts for you and your spouse to manage as you see fit.

As far as funding those accounts goes, well, that’s a discussion you’ll need to have. You may decide that you each get to put 10% of your income into your own personal account. Or you may decide on a preset dollar amount, like $300, that goes into your personal accounts every month.

You and your partner can, and should, feel free to work out an arrangement that suits you well. But it’s important to give yourselves the freedom to spend some of your money as you please without having to worry about upsetting the other or asking each other’s permission.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.

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