From Safety To Interest: How To Use Credit Cards Without Getting Burned

Holiday magic fades; the bill does not. On this episode of Bank Chats, we dig into credit cards—where they shine for fraud protection, travel, and big-ticket purchases—and where they can bite you, with interest, fees, and credit score dings.

Don't forget to follow the show, share it with a friend, and leave a quick review. What should we unpack next?

Credits:
An AmeriServ Financial, Inc. Production 
Music by SchneckMind
Hosted by Drew Thomas and Jeffrey Matevish

Thanks for listening! You can find out more about AmeriServ by visiting ameriserv.com. You can also find us on Facebook, Instagram, and Twitter.

DISCLAIMER
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts, with the goal of helping to take some of the mystery out of financial and related topics; as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast, and any resources available for download from our website or other resources relating to Bank Chats is not intended, and should not be understood or interpreted to be, financial advice. The hosts, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The hosts of Bank Chats are not attorneys, accountants, or financial advisors, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial, Incorporated. 

Transcript

Drew Thomas: 0:05

Fast fact, there are currently approximately 2.8 billion credit cards in circulation. With an average width of three and three eighths' inches, that's enough to circle the globe more than six times, if laid end to end. I'm Drew Thomas, and this is Bank Chats. I got to remember to start recording both places whenever I do these because I'm running the board and I'm running like, you can't see it on camera, like, if you're watching, yeah, like, I got the board here, and then I got the computer here, and then I'm recording two different places. Hi Jeff, how are you?

Jeff Matevish: 1:10

I'm good. How are you Drew? And it's okay. It's fine. I can match up the audio and video pretty good now.

Drew Thomas: 1:16

I it's, it's, we really probably should have one of those clapboards for you, or something like that.

Jeff Matevish: 1:20

I do have one. I got to bring one in, yeah.

Drew Thomas: 1:22

Or we could do that, yeah. But anyway, so I, can we still say Happy New Year? I don't know if that's a thing.

Jeff Matevish: 1:28

I think we're getting a little bit too far into the year. Yeah.

Drew Thomas: 1:30

Yeah. It's, it's when this drops, it's what, 23 days into the year, yeah, something like that. Yeah. So, we're like 8% of the way in, the year's ruined as it is. We might as well just start talking about 2027.

Jeff Matevish: 1:41

Happy Wednesday. Happy Wednesday Drew.

Drew Thomas: 1:43

Yeah, happy Wednesday. Is it Wednesday or Tuesday? It's Tuesday.

Jeff Matevish: 1:47

No.

Drew Thomas: 1:48

We drop on Tuesdays.

Jeff Matevish: 1:50

Well, we're recording this on a Wednesday.

Drew Thomas: 1:51

Oh, we're recording this on the Wednesday. Oh, sorry, all right, fine. It all depends on what actually is versus what day you're listening right is or watching this at any rate. What are we talking about today?

Jeff Matevish: 2:03

Well, we sent a little teaser out the last 2 Cents. We did, you did, that we were talking about credit cards today. Yeah, yes, I finally paid off my December Christmas shopping credit card bills. Good for you. Yeah, yeah. Soon as it came I just like, got to get that one paid off.

Drew Thomas: 2:20

Yeah, it's always, the holiday season is always, there's always that sense, whenever you're in the middle of it and there's the holiday magic happening all around you, and you're just like, it's fine, just pay it, you know? And then all of a sudden, in January it comes, you know, that the cold weather sets in, the gray skies, and the credit card bills arrive, and you're like, oh, man, I never should have said, just pay it.

Jeff Matevish: 2:42

Yeah, and it's a bigger, bigger number than you normally have, yeah, yeah. That's what scares me.

Drew Thomas: 2:48

Yeah. But you're actually very disciplined when it comes to your credit cards and so forth.

Jeff Matevish: 2:53

I try to be, yeah. I use my credit cards more as a, not like a crutch, but more as like a credit building tool, I guess you'd say, yeah, yeah.

Drew Thomas: 3:01

So, you're, you're, I mean, and I mean, this is a compliment, you're, you're far better than most Americans when it comes to that.

Jeff Matevish: 3:08

Thank you. Yeah. I mean, I, I can't remember the last time I actually had accrued interest on a credit card. I am very disciplined. I pay off my credit cards every single month on time, well ahead of time. Yeah, soon as I get that statement, I try to pay it off. But yeah.

Drew Thomas: 3:25

So, for all the people that are listening to this or watching this and are feeling like about this big because Jeff is so much better than you, I totally get where you're coming, and I'm far better at it now than I was when I was younger. Yeah, and I think that you're, you're about 10 years younger than me I am, yeah or give or take. I think that that 10 years makes a big difference in terms of some of this conversation, because I think that my parents and definitely my grandparents sort of looked at credit cards as just another account, and they, they just constantly carried interest and constantly carried that balance with them, and it was just a part of their life. My parents got a little better at it, and I think that now, like my generation, and then, like into, like your generation is, is getting to the point where we're starting to understand just how detrimental it can be to carry that much interest all the time.

Jeff Matevish: 4:29

Oh, yeah, yeah, you know, especially with the rates that we have today. Yeah.

Drew Thomas: 4:34

Yeah, definitely. I mean, I still remember my grandmother talking about Charga-Plates.

Jeff Matevish: 4:39

Charga-Plates?

Drew Thomas: 4:39

Charga-Plate. Like it was, you know, they didn't even have a credit card in the traditional sense that we think of credit cards now, like, oh, like, they would go to Glosser Brothers, and there would be an account on file, and they would charge on the, you know, charge to the account, you know, yeah, and it was all still on Glosser Brothers books. You know, yeah, it wasn't an external bank offering this.

Jeff Matevish: 5:03

It was all internal, yeah, yeah.

Drew Thomas: 5:05

You know. So, from the 1960s say, when those became a thing, and then the first Diners Club credit card, Yep, that was the first, very, very first credit card going to restaurants and things like that, you know. So, you figure, I mean credit cards, we've learned a lot in the last 60 years. You don't think of credit cards as being that young, but they kind of are, yeah, you know, yeah.

Jeff Matevish: 5:32

My mom has told me my grandmother never had a credit card. She didn't have credit to her name, by the time she passed away, she never had a credit card, yeah, yeah.

Drew Thomas: 5:42

I mean, that's, you know, that, talking about just the history of it, because, you know, I have to throw some kind of history in here, right? All right, it was 1972 I believe, I believe it was 1972, you can fact check me to be sure, but I'm sure you'll put something on the screen, or whatever if I'm wrong that that, I think that before, before, women were allowed to hold a credit card in their own name without a man being attached to it, in the United States.

Jeff Matevish: 6:09

Actually, women were allowed to have credit cards in their own name, starting in 1974 following the passage of the Equal Credit Opportunity Act. Really. Yeah, okay.

Drew Thomas: 6:18

It's, I mean, it's crazy recent, okay, crazy recent that, that was a case, which...

Jeff Matevish: 6:25

I thought it was impressive, but I guess not as impressive as I thought then. Yeah.

Drew Thomas: 6:29

I mean, I find that mind boggling. Yeah. That is Yeah. So, what we're going to talk about today is a little bit of when credit cards do make sense to use, okay, yeah, because there are definitely benefits to having a credit card and some of the things that they can provide. Yeah, and then we're going to talk a little bit about credit score, just, just a touch, because I think it kind of ties into that first conversation of why having a credit card might be beneficial. But I think we want to spend most of our time today talking about how credit cards actually work in terms of interest and payments, and how you can relatively quickly get underwater with, with credit cards if you're not careful. Yeah, yeah. So, how do we want to kick this off? Do you want to, do you want to talk about one?

Jeff Matevish: 7:15

Yeah, we'll just go down the line how you stated that. Okay. So, when is it okay to use a credit card? When's it a better idea to use a credit card? For safety reasons, online shopping. Yeah, absolutely. Over, over, over a debit card, you know?

Drew Thomas: 7:30

Yeah, I totally agree with that. I think that, you know, with a credit card, first of all, you're not exposing your checking account to a potential fraudster. Sure, I hate that word, but you're not exposing your credit card account to them, so that you basically can't or not, sorry, not credit card, checking account to them, or savings account to them, where they can liquidate what you would literally have in the bank if your card is exposed. Right, right. Your credit card companies are typically much better at you being able to say, hey, this is a fraudulent transaction. They wipe it out. I mean, they will research it. You can't just Yeah.

Jeff Matevish: 8:09

But you can, you can fight a fraudulent you know transaction. If you don't believe that you, you know, made that, that transaction, then you can say, hey, I'm not paying that.

Drew Thomas: 8:16

Right, right, right. Yeah. And your credit cards are a lot more flexible with stuff like that, because you're not, you're, you're not without your money, you're like physical cash, yeah, right, you know that may come out of your, your bank account, right? If that gets locked up or tied up in some sort of an investigation or litigation or something like that, true, yeah.

Jeff Matevish: 8:37

What else did you say you, you had said, traveling, it's a good idea to use credit cards whenever you're traveling, over a debit card. Just same thing for safety reasons. Sure, lose a credit card, lose a credit card number. Little easier to recover from that then having, like you said, your bank account liquidated.

Drew Thomas: 8:54

Yeah, yeah, absolutely. Plus a lot of credit card companies, and we're not going to get deep into the whole rewards programs and stuff in this and that might that's probably a whole other conversation, quite frankly, about how those kinds of things work. But a lot of credit card companies will have things in place to replace your card no matter where you happen to be, okay, so if you happen to be traveling out of your area, especially if you're traveling internationally, and you have a credit card that gets compromised or lost or stolen, and you call your credit card company, they'll arrange to try to get you a card wherever you are.

Jeff Matevish: 9:37

Oh, that's nice.

Drew Thomas: 9:39

Whereas a lot of times when it comes to your bank, your debit card is going to come to your home address, which doesn't help you if you happen to be traveling out of the country, that's true. So, even if they do replace it, it's not going to be mailed to you in Italy, it's going to be, you know, sent to your home address. And again, all of that is for anti-fraud and all that stuff, but it doesn't help you in the moment, right, right?

Jeff Matevish: 10:03

So, and still, sometimes a good idea to have a backup credit card too. I mean, sure, yeah.

Drew Thomas: 10:08

Yeah, I definitely have one credit card that I, I typically charge one thing on it a year, okay, just to keep it active, so that they don't send me nastygram saying, hey, your credit cards, yeah, not been active, so I'll buy sometimes literally, I think last year, I literally bought a cup of coffee on it and then paid it off just to make sure that it had activity. Yeah, all right, right. But there is that one credit card that I have that is my just-in-case card. Oh, man, I can't, yeah. What am I going to do, credit card, right, right? And then the last thing is, is sometimes when you're making large purchases. A lot of credit cards. And again, this goes back to that whole rewards program that we're not going to get deep into here, okay, but they a lot of credit cards, will offer some sort of extended warranty protection for appliances or electronics or whatnot, and they go beyond the manufacturer's warranty, which can be very beneficial. And a lot of times, you can find credit card offers that will give you some sort of extended, low or no interest promotion whenever you're buying a large purchase, okay, yeah. Which essentially, you know, they used to use the term same as cash. I don't know that you can technically use that so much anymore, but that's the basic idea, is that you're paying it in payments, and you're not, if you're getting low interest, or especially no interest, like 0% interest on that purchase, yeah, right, right. You know it helps you sort of cushion the blow of some of those larger purchases. Yeah, right. And we're going to talk a little bit about how you, you can utilize that to your advantage, versus how the credit card companies may utilize it to their advantage, as we get into like credit card interest calculation and stuff here. Okay, yeah, so, all right, so, so those are some reasons why credit cards definitely make sense. And to your point earlier, which I think you mentioned, is just the idea of building credit.

Jeff Matevish: 12:01

Yeah. I mean, you want to, you want to take a loan out for a car or a personal loan, you got to have good credit. And one good way to build that credit is to have good credit history with your credit card.

Drew Thomas: 12:14

Yeah, yeah, definitely. And, you know, I've had, you know, we've, I've worked in banking now for a good while, and I worked in retail before that, where we offered credit cards for purchases. And you wouldn't believe how many times over the last 30 years that I've been working that I would come across somebody that said, oh, I've never had a credit card or anything in my life. I'll have no problem getting your credit card. And the answer to that is sometimes not true, because if there's absolutely no credit history on you, a lot of times getting your first credit line is more difficult.

Jeff Matevish: 12:52

It can be, yeah, yeah. I had a side story. I just remembered. When I was young. I was probably like, I don't know, like, 13, 12, 13 years old. And I went into one of these big box stores on, like a Black Friday, and they asked me if I wanted to open a charge, I don't know if it was a charge card or a credit card, or what do you consider, probably a credit card, a card. Yeah. I was like, Yeah, sure. Why not? I want the, I want the bonus, or whatever. Like, you know. So, they're getting all my information at 12 or 13, and I got, you know, obviously declined, you know, because of my age. First off, and I remember going home and telling my parents, oh, yeah, I tried to, you know, open this charge card. Oh, my God, it was like the world was ending. Like, no your credit is already screwed up, and you're 12 years old.

Drew Thomas: 13:40

How in the world did anybody look at you at that age and go, hey, this person could get a credit card, I mean...

Jeff Matevish: 13:45

I hope that, that person's not working there anymore. Yeah,

Drew Thomas: 13:50

Although I again...

Jeff Matevish: 13:51

It didn't end up hurting my credit score, by the way. But you know, you can't have, you know, it didn't hurt me of a zero credit score. You know, it's good.

Drew Thomas: 14:02

You're right about how things have changed, though, because I probably related this story before in, on one of the episodes. But when I was in college, when I first started in the student union, there was a train of credit card companies that would line up in the student union with free T-shirts, yep, yep. And, you know, sign up for a credit card and get a free T-shirt. They were the most expensive free T-shirts I've ever had in my life. Oh, yeah, because, you know, it costs them next to nothing to provide me with a free T-shirt and a credit and then a credit card at 22% or something, yep. And back then, that was still allowed, like, you can't do that anymore, like there are rules and regulations in place at college campuses that prevent credit card companies from doing that these days, because you're essentially preying on younger, uninformed right, who are uninformed and uneducated on how credit cards work. And you know, they think that this is just free money that they can use to go out and party, when, in reality, they're just racking up additional debt in a, you know, on top of this likely student debt that they're growing, right, right? So, yeah, it's, it's rough, yeah, for sure, yeah. Let's talk a little bit about credit score, because you kind of led into it by saying that, you know, building credit and, and your credit score is hard, sort of tied together very closely, right, right? So, let's talk about some of the ways that your credit score is calculated. 10% of your credit score is length of credit history, okay?

Jeff Matevish: 15:38

So, that's per card, or, just like in general, how long you've been, you know, using credit card, I guess?

Drew Thomas: 15:45

It, the answer, well, the answer could be both. Okay, so, so the idea is that, just like if you were borrowing from me, right, the longer you know me, and the more you know about me, the more comfortable or less comfortable you're likely to be when you're loaning me money. Yeah, so if you know that, hey, man, you know I've loaned you, I've known you for 30 years, I loaned you a couple bucks, you know, 30 years ago and you paid it back. I loaned you another couple of bucks 20 years ago and you paid it back. You're much more likely to say, hey, all right, I'll loan you another, yeah, bit of money, whatever it is, because I know you're likely to pay me. You're right. I'm likely to pay you back.

Jeff Matevish: 16:23

And if we have a mutual friend that you know says, hey, Jeff wants, you know, asked me to loan him some money, you know, is he good for it? You know? And then you could say, yeah, he is, you know.

Drew Thomas: 16:31

Yeah, exactly right. So, now that being said, you know, if you open up a credit card at 12, you can't do that, but, yeah, you want to try to keep that piece of credit, if possible, on your credit report for as long as you can. So, if you've your first credit card, if you haven't already closed it, and it's not, and it's not a financial burden to keep it, yeah, the longer you can have something like that on your credit report, theoretically, the better it is, because it gives other people who may be trying to extend you credit the chance to look back and see, oh, okay, your credit goes back this far. Yeah, right. Now, there are some people who have done debt consolidation and things that those kind of credit cards got closed and so forth. It's only 10% of your score, right? Yeah. So, you know, is it nice to have a long-term credit on there for people to look at? Yes, but at the end of the day, you got to do what's financially best for you. Yeah. Yeah. Okay. 10% is new accounts. So, that would be every time that you go and somebody pings your credit to see if you're credit worthy, and they open, you open a new account, that's 10% of your score.

Jeff Matevish: 17:54

Okay, okay, so that knocks you down just 10%.

Drew Thomas: 17:58

Well, it's not going to knock you down 10% but it's, it's 10% of the scores weight, okay. So, as they, they take all these factors in, okay, it's kind of like a grading on a curve in, in school, you're going to, you're going to have more weight on one thing than another, okay, right? Yeah, 15% of your credit score is the type of credit you have. So, a difference between, say, a mortgage, a car loan and a credit card, right? They're all lending vehicles, but a house that has equity and is a larger number and all that kind of stuff is probably going to be, you know, oh, okay, this person has, you know, that on the, you know going for them, as opposed to say, what should be short-term credit, like a credit card, okay, yeah, right. So, the type of lending they have, the type of credit you have on your card. Now we start getting into the heavy hitters. 30% is what you owe.

Jeff Matevish: 18:58

Okay, so your balance, your balances, any additional fees, yeah, correct.

Drew Thomas: 19:04

So, if you have$100,000 in debt, 30% of your credit score is looking at that value, okay, and saying, wow, that's a lot. Or, wow, that's not. Now, that also could, could come into play in terms of your income. If you're Bill Gates, and you're making $3 billion and you're worth $3 billion and you have $100,000 in credit card debt.

Jeff Matevish: 19:28

So, they're looking at your debt-to-income ratio.

Drew Thomas: 19:30

Yes, they're looking at that as well. Okay, right. But let's, let's imagine just, I'm just going to throw an example together in my head, but let's imagine you make $100,000 a year, okay? And you have$50,000 in credit card debt, and now you're asking to go buy a$75,000 car, Lincoln Navigator, or something like that. I don't know. Okay, sure, right, I'll take it. Yeah, me too. They're going to look at that and they're going to go, well, you're only making $100,000 a year. You already have $50,000 in debt, and you want to add another $75,000 in debt over how long? But, yeah. I mean, yeah, but still, like, you got to pay all these things off. Like, how are you going to pay me back if you're already having to pay all these other people back? Yeah, I guess, yeah, right, because you're already making payments on all this other debt. So, now I have to take that into consideration too. Oh, you make$100,000 and you know, my, my, your Lincoln Navigator payment might be $900 over five years, or something like that, a month. Yeah, right. But you got to pay that $900 in addition to the$50,000 the payment you're making on the $50,000 you already have. Yeah, right. So, that that's a big deal, and then the number one thing that is on your credit score is payment history.

Jeff Matevish: 20:49

Pay your bill on time. Yes.

Drew Thomas: 20:52

It ties very closely to that, that, that how much you owe. Yes, right? Yeah, if you're making your payments late, that's going to really, really negatively impact your credit score.

Jeff Matevish: 21:04

Now you can make your minimum payments, but as long as you're making your minimum payments on time, then that's not going to ding your credit score. True, yes, is it a good idea to make payments higher than your minimum? Absolutely.

Drew Thomas: 21:20

And we are about to get into the weeds on that, but yes, you make a very good point. As we talk about interest, and we're going to talk about interest here in some depth. I think that there's the potential for some of this to get confusing, and we're going to try to not make it confusing. But before we start potentially confusing anybody, I think there are a couple of things that you should know. Making your minimum payment is better than making no payment. Absolutely, right. So, that, that is important to understand that whether or not it's financially advantageous to you to only make minimum payments or not, you know, from a monetary standpoint, we're going to talk about how that's probably not the best idea. But if you can, if that's all you can afford, it is better than not making a payment at all, right, right, right.

Jeff Matevish: 22:21

It's kind of like what we talked about last 2 Cents too. You know, paying your bills just in general, you know, good faith, you know, yeah, payment type thing.

Drew Thomas: 22:27

Yeah, right, yeah. 100% so let's talk about how credit card interest works. Okay, because it is not as straightforward as you might think. It is not as straightforward as it might be on certain other types of lending, going back to that whole like, what kind of loans do you have on your credit report? Right? Yeah. So, credit card interest is just like any other interest, it's the cost of borrowing the money, right? So, when you carry a balance from month to month on a credit card, it's expressed as what is called an Annual Percentage Rate or APR. What is an APR versus an interest rate?

Jeff Matevish: 23:06

We had just gone over this, yep. Okay, so one incorporates your, your fees, any late charges, and one doesn't. So, your APR doesn't incorporate, or does, does incorporate, yes, all of those fees, whereas your interest rate does not incorporate any of that, right?

Drew Thomas: 23:26

Okay. Now, when it comes to credit cards, those two items, the interest rate and the APR, are probably going to be almost interchangeable, okay, yeah, right, because typically with a credit card, additional charges such as annual fees, balance transfer fees and cash advance fees are not factored into a credit card's APR, okay. With other loans, however, the two are not necessarily the same. So, while your interest rate determines how much interest rate you're paying on an annual basis for a loan, right? So, let's, let's imagine that this is a mortgage, right? The loan's APR incorporates all finance related charges, including things like origination fees, application fees and other things.

Jeff Matevish: 24:16

Okay, so it's more universal, like it's easier to understand. I guess everything's kind of wrapped up in under one number.

Drew Thomas: 24:27

Yes, okay, yeah. So, I know we kind of talked before we got started, but I'm going to use the same example I did. It's more, it's to give you more of an apples-to-apples comparison. So, you know, back in the 70s and 80s, you know, some banks would try to get a competitive advantage over their local other banks by saying, hey, we offer a mortgage rate of you know, let's imagine that it's the Jimmy Carter era we imagine, right? We offer an interest rate of 10% which is way lower than Bank B that offers an interest rate of say, you know, 13% on a mortgage, right? Yeah, what they didn't necessarily have to tell you back then, right, is that while interest rate at Bank B was 3% higher, their origination fees or their application fees were much lower, okay, right? So, they might only charge, I don't know, 100 bucks for an origination fee and $100 application fee on that 13% interest rate, whereas Bank A what they may have been doing was saying, hey, we have a 10% interest rate on your loan, but we're going to charge you $1,000 interest, a mortgage origination fee, and we're going to charge you $1,000 application fee. Yeah, right. So, now, all of a sudden, we're charging you 10% interest on not only what your mortgage is, but the $2,000 in fees that we added, right? Which actually makes bank A more money.

Jeff Matevish: 25:56

Yeah, so, right, you're paying more overtime, right.

Drew Thomas: 25:58

Right, so the idea was, with this whole Truth in Lending and everything else, which is a fantastic thing that happened in banking, then this APR for loans like that is supposed to give you a better apples to apples comparison between banks, because they have to incorporate all that into what you're likely to pay in interest over the course of a year. Makes sense. Fair? Yeah. The thing is, when it comes to credit cards, credit cards are supposed to be technically short-term debt. So, most credit cards, they will charge you interest per day, not per month, not per year. They will charge you interest per day. Okay, right. So, things like APR become a little more murky because of the way the interest rate is calculated and what fees they may or may not apply, because a lot of times, for example, their credit card might charge you a balance transfer fee, or they might charge you a different fee on cash advances versus purchases. And not everybody is using those elements of their credit card. Not everybody is transferring a balance. Not everybody is using it for cash advance. So, it's harder to say, well, this is the APR, because you might be using your credit card a different way than I'm using my credit card.

Jeff Matevish: 27:10

Yeah, yeah. You want to touch on, on any of that, on like, balance transfers or anything, nope, on the next episode.

Drew Thomas: 27:21

No, absolutely. So, let's talk, let's talk about the different types of fees and interest rates. Okay, right? So, when it comes to, if you're trying to follow along on your credit card at home, and you dig out your statement or whatever, and you're, and you're looking at this, right, you're likely to find that there are multiple different versions, and it's probably toward the end of your statement, sort of in the fine print, somewhere or near the bottom of your statement, it's going to tell you that there are different interest rates, most likely. And again, we're talking in generalities here. So, we're not trying to throw any one credit card or bank or credit card issuer or anything under the bus. We're just saying in general. So, your mileage may vary based on what you look at on your statement, okay, but again, as a generality, you're going to find that there are purchase APRs, and then you also may see balance transfer APRs or cash advance APRs. A purchase APR is the interest rate you're paying on purchases that you make with your card, and most likely it's going to be your lowest interest rate, ironically, and your rate will generally depend on the credit card product itself and your credit worthiness. So, some credit, most credit cards are not a fixed rate, right?

Jeff Matevish: 28:39

Yeah, yeah. Whereas your, ours is like, I don't know. I think I had it written down somewhere, ours goes from like 17% to 25% right now. I mean, yeah, yeah. So, yeah, it's very, there's a big swing, yeah, yeah.

Drew Thomas: 28:54

It definitely can be a big swing. And it's typically based on the Wall Street Journal prime rate or something along those lines, and then they add a percentage on top of that, whatever it might be. So, if the what's the prime rate right now, six and a half percent? I think six, 6.75 Yeah. So, so the prime rate 6.75 so most credit card companies, what they're going to do is they're going to say, okay, well, it's 6.75 plus 10.99%

Jeff Matevish: 29:24

Because they got to make money too. Yeah, right, right. Yeah, right.

Drew Thomas: 29:26

So, according to some data in, let's see, August 2025 data from the Federal Reserve, the average credit card interest rate was at 21.39%. Okay. 21.39% is not nothing.

Jeff Matevish: 29:45

No, it's not. You break that out over 12 months, or actually, you said daily. I mean, that number goes down quite significantly, but yeah, 21% is still nothing, not

Drew Thomas: 29:58

Yeah, no, it's definitely not. Especially when nothing. and I wish I would have gone and looked this up, and maybe you can throw this up on the screen. Maybe we can find it and throw it up on the screen for those that are viewing this, but and put in the comments or whatever for the people that are listening on the podcast itself. But I don't know what the average credit card debt is per, for the average American.

Jeff Matevish: 30:21

Oh, like, what your average balance is?

Drew Thomas: 30:23

Yeah, with the average balances, but my guess

Jeff Matevish: 30:25

Not even just credit card debt, just debt and is that it's pretty high nowadays. Yeah, yeah, no, I mean for the average house, the average person or the average household. Yeah, there's probably numbers out there for average household credit card debt, yeah. general is probably higher than it was a decade ago. I'm sure.

Drew Thomas: 30:43

Oh yeah. I mean, overall debt probably is. But Yeah. for the purposes of this conversation, I want to look at credit cards, but 21 point, you know, like, if people are losing their minds, spending 6% on a mortgage, right, and if your house is and let's imagine that we're talking, we're talking about a more, a more, I don't know, average median house in a lower income area. Let's imagine you have $200,000 house, right? If you said that you were buying a $200,000 house with 21% interest rate, no one would buy it. Oh my gosh, no, right, right, but yet, people have, some people have $200,000 in credit card debt at, 21% interest, yeah, that's a lot, right? And some credit cards go even higher than that. So, now...

Jeff Matevish: 31:35

Usually big, big box stores or department store cards, usually a lot higher than that, right?

Drew Thomas: 31:40

Yeah, yeah, yeah, yeah. 100% I was going to say, but yeah, no. But it's there a lot there, a lot higher, yeah. So, now we say that the, the interest rate is calculated daily, and it is, but most credit card companies will give you a grace period for the interest that is accrued while the statement is currently sort of in phase. Okay, so if your credit card statement comes due on the 25th of the month, and you, you know, and your due date is the third of the next month, right, and you pay the balance in full on that day, typically, they will waive the interest that was accrued during that month. Okay, right? There's a grace period where they won't charge you that interest, because you paid it off immediately. Okay. However, if you don't pay the balance in full, then that interest rate, that interest, is going to be added to your, to your account. Okay, okay, and we're going to get into an example here on that, but I want to, but I want to talk about the other ones first. So, balance transfer APRs. So, a balance, a card's balance transfer APR is often the same as the purchase APR and only applies to balances that you have transferred from other credit cards. There is typically no grace period on balance transfers, and your rate will usually depend on your credit worthiness. If you make a purchase while a balance, balance transfer APR applies, however, it's important to know that your payments beyond the minimum amount due are typically applied to the balance with the highest APR first, which is to your benefit. But you should still know how the money is being applied, right? It's being applied to the highest APR first, which means that your money is going mostly to interest at that point, not to the principal. Yeah. So, you know, just as an example, and again, we're going to use, I'm going to use a credit card that I have as an example. I'm not going to name names, but I'm going to say this, what it is that they, they charge a 3% balance transfer fee.

Jeff Matevish: 33:38

Okay, I think that's the standards, like three to five, yeah, yeah. Okay.

Drew Thomas: 33:42

So, if I wanted to say, say I was, I don't know, say I had a credit card that was 30% interest, and my credit card, the other credit card I have, is, is 20% interest, okay, right? It's, it's to my advantage to move the balance from the 30% interest card to the 20% interest card. Oh, yeah, right, right. But I'm still going to pay a fee to do that, typically. So, if I'm moving, say, $1,000 and it's a 3% balance transfer fee, right now, I'm going to move, I'm actually moving $1,030 to the new card, yeah, and I'm going to pay the 20% interest on the new card on$1,030.

Jeff Matevish: 34:23

But it's still going to be lower than what your 30% interest was on the old card.

Drew Thomas: 34:27

Right, right, right. So, that is something that you can look into. You know, if you have a credit card that has a large credit availability, and that credit card offers a lower interest rate than one of your others, it is a way to potentially lower your debt a little faster, yeah, by transferring the balance from one to the other.

Jeff Matevish: 34:51

Now sometimes credit card issuers will have some promotional card where they'll offer zero interest for a certain number of months, you also, and that's great for a balance transfer, but you also have to look at what that rate's going to be after that time period is up. If that, that interest rate is higher than what you were paying with your original credit card, and you have a history of racking up a balance, you may not want to transfer to that card, yeah,

Drew Thomas: 35:21

I mean, that's, that's, that's a very fair yeah. point. You're absolutely right. And you know that, that kind of, I think that's, that's a good opportunity to talk a little bit about, because you mentioned the big box, yeah, department store cards, right? That typically have much, much, much higher interest rates, often in excess of 30% right, right? A lot of those store cards will offer sort of any time deals where, if you're spending, say, over $500 you get six months no interest on a purchase. Yeah, right. Or if you're spending over $2,000 you get a year of no interest or whatever it is, yeah, right. Those are, those are fantastic deals if you pay them off within that time frame. True, very, right, yes, so that's the thing you have to be very cautious of when it comes to store, big box store, department store type credit cards, okay? That offer those kinds of interest deals. Okay, right? If you go to the furniture store and you open the furniture store's credit card and you spend $4,000 on furniture, and they give you 24 months, no interest on that.$4,000 in furniture. You best go home, take $4,000 divide it by 23 right, yeah, and consider that to be your minimum payment, yeah, because if you don't pay it off within that 24-month period, what happens is, let's talk about balloon payments. What happens is, you get every dime of interest that would have been added to that purchase at the credit card's given interest rate tacked on in one lump sum on month 25.

Jeff Matevish: 37:27

That sounds fun.

Drew Thomas: 37:29

So, if you had potentially racked up $800 in interest that was being deferred through this no interest program, and you don't pay it off by the end of that no interest promotional period, now, even if you had $2 left, on month 25 you are going to have 800 plus dollars plus two. Okay, so this is why you have to be very under you have to, by understanding how these work is very, very beneficial toward making sure that you are getting whatever benefit you think you're getting true. Yeah, right, and that's why you and I are having this conversation, right? Right, right. Now, with bank credit cards, and you can ask your bank about this, right, if a bank is offering some sort of a no interest promotion, introductory, no interest period, something like that on a bank credit card that is not attached to a particular store or a particular purchase or a particular type of purchase, or all those kinds of things, right? Most of the time, those kinds of no interest promotions, because they're not tied to a particular purchase or a particular dollar value, right, it's just an introductory no interest period, yeah, right, they can be also much more beneficial to you to, to use for large purchases. We talked about that at the very beginning, right? Big purchases, right? Right. Because in those cases, for a bank, if it's just simply an introductory no interest, you're opening an introductory no interest means you opened a new account, and for this for, for a set amount of time after you've opened that account, the interest rate is zero, right or lower, right, right, right before, before the actual interest rate kicks in. Those cards, if you put a large purchase, like a refrigerator or furniture or something like that, on it and say you don't pay it off by the time the introductory no interest period expires, you're still only going to pay interest on whatever's left on your card, on that balance right, not on the balance that you put on it when you started. Right, right? So, yeah, better deal. Much, much better deal, right? You know, much better deal. Yeah, okay, so let's talk about, we kind of already talked about APR versus interest rates. I don't want to, I don't want to get into that. I don't want to get into that again. And introductory APR, we just kind of talked about that too. So, you know, again, there's a difference between an introductory APR and buy this amount of money, and we'll give you 0% for so long, right? Because you might be able to get that deal again, even if you are a cardholder that's, that's five years old, right? I might have a big box store card in my wallet that I've had since I was 25 and I could walk in today and if they say, hey, listen, as long as you spend $2,000 we'll give you 24 months, no interest. It's not introductory rate. It's yeah, it's promotion, yeah. Promotional deal, right, right? And so I think that's the difference to make, is there's a difference between an introductory rate and a promotional offer.

Jeff Matevish: 40:47

Okay. Yeah, fair when it comes to credit cards.

Drew Thomas: 40:52

Let's talk about penalty APRs. So, we talked what is one of the, what is the biggest thing that impacts your credit score?

Jeff Matevish: 41:03

Your history, payment history.

Drew Thomas: 41:04

Payment history, yeah. In other words, making your payments on time, correct, right.

Jeff Matevish: 41:08

So, normally, if you don't pay, make your payments on time, you get a penalty.

Drew Thomas: 41:12

Yeah, yeah. So, not only on your credit score is going to, is it going to affect your credit score, right? Right. Because it's going to show late payments, right? But most credit cards will have a penalty APR, meaning that if they, and they'll charge you a late fee, by the way, yeah.

Jeff Matevish: 41:28

And interest on your, on your...

Drew Thomas: 41:30

On the late fee, yeah. So, a penalty APR on credit cards is typically up to 29.99%. Wow. And will apply if you miss a payment by 60 days or more on a personal credit card. Some business credit cards, it can occur as soon as you miss a payment, meaning your payment was due on the fourth, it's the fifth, you're going to get penalty APR. Wow. Once you trigger a penalty APR, that APR will remain in place for at least six months. It is not a penalty APR on the late fee. It is a penalty APR that your entire balance goes to until you clear it.

Jeff Matevish: 42:18

Oh so, if you have a remaining balance for six months, you will receive that penalty.

Drew Thomas: 42:25

Correct. Okay, so if I have a balance of $5,000 my interest rate is 20% I'm late on a payment. Okay? Based on your credit card company's policies, anywhere from the next day to up to 60 days later if I haven't made a payment, yeah, now instead of my credit card APR, purchase APR that we just talked about being 20% now it could be the penalty APR for up to six months.

Jeff Matevish: 42:54

Oh, okay, okay, right now I understand, yep.

Drew Thomas: 42:57

Or for, I'm sorry for at least six months. Six months. Okay, right. Got it. So, you're going to pay a lot more interest because, again, you're showing that you can't make your payments on time, so they're going to charge.

Jeff Matevish: 43:07

They want to cover themselves, right, right.

Drew Thomas: 43:09

Yeah, right. So, let's do, let's do a little bit of an example here. So, we're going to calculate daily APR. So, to do this, you divide the APR by 365 some credit cards will use 360 because it's easier, because you don't have to account for leap years and things like that. Okay. And it's just a nice round number, I guess. So, if your APR is in this example, if your APR is 16% then your daily periodic rate would be 0.16, okay, divided by 360 or 365 okay, depending on what your credit card uses. Okay. So, in this case, that would equal a daily rate of 0.00044, right. Now, that doesn't sound so bad. A daily rate of 0.00044, you're like nothing. You know, that's fine, and maybe it is depending on your balance, because we're talking percentages here, yeah, yeah, right.

Jeff Matevish: 44:06

That's 0.00044, not percent. So, it would be 0.044%

Drew Thomas: 44:14

Correct, okay, correct, right. So, so once you have that, to calculate your average daily balance, because, remember, your interest is assessed on your average daily balance. So, you have to figure out what that is. And in order to do that, it's a little more complicated. You have to look at your statement. Okay, you start with your balance on day one, including any debt that you may have carried over from a previous month. Then you calculate your balance for each day by adding the cards balance at the start of the day, the day's new charges. So, if you made any purchases or anything else, all right, balance transfers, whatever it is, the day's payments and other credit statements. So, if you had say, if you return something and you got a credit statement that day. You know, you return something to the department store, they credit your card. Yeah, right. That's included if you made a payment that day, if it was your, you know, you made, you made a payment, whether it was your due date or not, if you made a payment, that you take that into consideration, and then any fees that may be related to the transactions of the day. Once you've done all that, you'll find the average by totaling each daily balance and dividing that total by the number of days in the statement cycle, which is typically 28 days or 30 days. Yeah, okay, it's a month, right. Most people do not do this. Like, I mean, it's, it's a calculation that, like, makes your head spin, you know, so you're, you know, but knowing that that's how it's done, and understanding that it's a daily, I think the most important takeaway is, it's a daily interest rate.

Jeff Matevish: 45:46

Yeah, most people just pay it, you know. Oh, hey, I got interests. Okay, so what? I'll let it ride to the next month. Yeah. I mean, you're right. Most people don't break down this into, into a, do the math on it, right.

Drew Thomas: 46:01

Yeah, right, yeah. And they're looking at it and they're saying, oh, it's 22% a year or whatever it is for your, for your credit card, right? So, they're just kind of, you know, doing some fuzzy math in their head and going, yeah, that that works. or no, it doesn't. But yeah, what you have to understand is that, unlike some other loans that may have the interest calculated per year or per month, credit cards calculate it per day. And that means that if you're carrying a balance right, the interest rate is calculated. It's a compounding calculation. So, your interest rate is actually growing at a larger, at a faster rate than, than, say, what your interest balance would be at the end of a car loan or a home loan or something like that. Okay, yeah, right, because they're taking it and calculating it each month or each week or each year, whereas calculate, I mean calculating per day, it's that compound granular, yeah, you know. So, even though it is a small amount, you're only adding a few pennies every day. If you add a few pennies every day. It's that, that goes back to that example, take a penny a day and double it all of a sudden,

Jeff Matevish: 47:04

What do you want more? Yeah, a million dollars, right? or, you know, right, the money at the end of the month, right. Okay.

Drew Thomas: 47:11

So, what I did was, I tried to come up with an example that was sort of, sort of just easy enough to understand? Yeah, I mean, I don't, I don't mean this, I'm not trying to pander to anybody, but this stuff is not easy to wrap your head around. No. So, let's, let's imagine that you have a situation here where we, they said that the average interest rate was 21.39% or whatever. So, 22%, we're going to call it 22% for the sake of simplicity. Okay, you have a balance of $5,000 on your credit card. Okay, your statement arrives. Your credit card's minimum payment is typically 1% of your balance, or some minimum usually $5 okay, right?

Drew and Jeff: 47:57

Whatever's higher, right? Which and the right is, it's going to be whichever is higher. Because obviously, if you're only carrying a balance of 100 bucks, they're not going to charge you$1 like, that'd be 1% they're not going to charge you $1 they're going to charge you five bucks, right? Yeah, it's not worth processing your payment for $1, right, right? So, they're typically going to say it's 1% of your balance, or some minimum of like, five bucks. Okay, okay, so we have a balance of $5,000 on this credit card, this imaginary credit card, and your statement arrives, your credit card's minimum payment 1% so in this example, your minimum payment due is 50 bucks. Yeah, okay, yep. So, let's imagine that the interest rate is the national average right now of approximately 22% okay, that means that if you don't pay your balance in full, because remember, most credit cards will give you a grace period, if you pay your balance in full, they won't charge you the day, even though they were charging you daily interest. They will, they will waive that if you pay it in full, typically, okay, but let's imagine you don't pay it in full, you're going to be charged that interest. $5,000 times 22% annually. And then if you do that calculation that we talked about, right, it works out to being approximately $3 per day in interest, okay, which is about 90 bucks a month. Yeah. Now remember, we're making a minimum payment of 50 bucks, because my minimum payment value was 1%.

Jeff Matevish: 49:32

Your interest is more than your minimum payment, exactly, okay.

Drew Thomas: 49:37

So, in this case, you're actually pay, if you just pay the minimum, right, which that's, again, paying the minimum is literally the least you can do, and without hurting your credit, without hurting your credit, right, right. So, if that's all you can afford, fine, yeah, that's what you should do, right. But if you can afford to pay more, you should, because in this case, if you pay the minimum payment of 50 bucks, and you have a credit card bill that is now $40 higher next month, even if you never made another payment or another, another charge. I'm sorry. So, now next month, your bill is$5,040 even though you paid 50 bucks.

Jeff Matevish: 50:18

Yeah, then you're going to accrue interest on that.

Drew Thomas: 50:22

Exactly, yeah. So, again, okay, what's the interest rate at $3 a day adding an extra$40 to $5,000? It's probably still going to be a minimum payment of $50 the next month.

Jeff Matevish: 50:34

But it's eventually going to get higher.

Drew Thomas: 50:36

Right. Because you're still going to add another $40 on right when you only make the minimum payment of$50, right. So, now, on month three, your balance is $5,080 and then $5,120 and then $5,000, right? So, and on top of that, you're still out the $50 a month you're paying, yeah, so you're paying all this money to the credit card company. You're keeping your credit score good to be fair, right? You're

Jeff Matevish: 51:03

You're possibly hurting yourself, you know, for showing you're making payments. opening future credit cards, but yeah.

Drew Thomas: 51:11

Potentially because your balance is going up, right. So, yeah, but I think that's what a lot of people don't understand. And now most credit cards will actually have a thing on your statement that says, if you make the minimum balance payment, here's how long it'll take to pay off your card. Yeah, if you make, they'll pick some arbitrary number. If you make a payment of this long, it'll take you this long to pay off your credit, right? Yeah, and it's amazing how it doesn't really, it doesn't always take a whole lot more every month to at least make sure that you're getting ahead instead of paying money just to kind of keep your head afloat, but you're still drowning because your, your balance is still going up, yeah, right, even though you're making payments, right. So, yeah, that's really, really, really, really important to understand for people. So, yeah, so I mean, I think that that's, I mean, does that I don't know. We could get into all sorts of other stuff on credit cards, especially things like, we could probably talk for another hour on rewards programs and how they work and things. And I think we probably should.

Jeff Matevish: 52:15

Yeah, we should do another episode, yeah, but maybe we'll do that one closer to the end of the year when people cash in their rewards points.

Drew Thomas: 52:22

Yeah, yeah, we could do that, yeah. Because, yeah, it's going to, you know, everything comes around again, right? You know, the holidays will be here before we know it, right? But I'm really happy that you, that you are of that, that mindset, that you are, that, you know, you just try to pay that off. I mean, Oh, me too. Yeah, happy to because ideally, that's really what you should do.

Jeff Matevish: 52:45

You can really get over your head really quickly with this kind of stuff.

Drew Thomas: 52:48

Yes, yeah. And before you know it, you're like, how did I get here? Yeah, you know. And it's because of this. It's because this idea that, you know, the credit card companies, I'm not going to go so far as to say they're being malicious, but they're in business to make money, right? And at the end of the day, they are.

Jeff Matevish: 53:09

They're making money at your expense. I mean, yeah, yeah.

Drew Thomas: 53:14

I mean, you know. And again, I'm not saying that they're, they're just like these evil corporations or anything like that. It's that's just not the way it is. It's like, you know, no matter who you borrow money from, whether it's your local bank, a credit card company, a department store card, whatever it is, at the end of the day you're spending money you don't have. Right, right. And there's going to be a fee for that right, right? Nobody has that's, that's the way that finance work, yeah, you know, in time, in Memorial, right? It's not evil, it's just the way it works. You're going to be asked to pay more if you can't pay it all now, like, so, you know, in a perfect world, you would just save up money to buy your big, big expenses and pay, you know, pay yourself into a savings account, you know, and then when you need a refrigerator, take money out of your savings account, go buy a refrigerator in cash, right, right. Better budgeting, yeah. So, that's, you know, that's in a perfect world, that's how it works. But we're being realistic on this program and saying, like, look, we understand that in the United States, especially.

Jeff Matevish: 54:23

With the price of everything going up, people can't afford to pay out of pocket for everything right away.

Drew Thomas: 54:23

Yeah. And debt is a thing, yeah, you know.

Jeff Matevish: 54:26

And we see payment plans more and more, especially on, like online shopping. We've, we've had episodes on, you know, the buy now, pay later, you know, same, same type of thing, yeah, yeah.

Drew Thomas: 54:38

100% so no shame involved here, just honest understanding of how these work and how you can make sure that you are benefiting from these programs and these cards as much as you can, not the other way around.

Jeff Matevish: 54:57

Yeah, so you're using it as a tool, not as a crutch.

Drew Thomas: 54:59

Yes, yes, yes, perfect. I think we're going to end it on that. I think that's fantastic. Okay, all right, thanks very much. Jeff.

Jeff Matevish: 55:06

Hey, thanks, Drew. This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats is not intended and should not be understood or interpreted to be financial advice. The hosts, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The hosts of Bank Chats are not attorneys, accountants, or financial advisors, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation.

Drew Thomas: 56:16

Credit cards are a fine tool, but we need to be educated on how to use them properly. Much like how fire can both cook your food and keep you warm, but also burn your house to the ground if it is not kept under control, credit cards can work to your benefit or cause you unending financial headaches. In an ideal world, everyone would simply save enough money ahead of time to purchase what they need. But the world is rarely ideal, therefore the most important things to remember are, one, make your payments on time. Two, pay more than the minimum if you're able, and three, ensure that you understand how your interest is being applied to your balance, so that you aren't stuck with a huge bill out of the blue. AmeriServ Presents Bank Chats is produced and distributed. AmeriServ Financial, Incorporated. Music by SchneckMind. The show's co-host and executive producer is Jeffrey Matevish. You can find the show on the AmeriServ website. You can watch us on YouTube, or listen on any of your favorite podcast networks. For now I'm Drew Thomas, so long.