By Robert Harrow
A new study released earlier this week by the FINRA Investor Education Foundation reveled that a majority of millennials use credit cards in an expensive way. They are more likely than the rest of the population to pay late fees or take out cash advances. These are avoidable expenses no one should pay. For millennials, these practices put a strain on their finances, making it more difficult to budget or establish a solid credit history.
We took a look at some of these expensive behaviors and broke down why young adults should avoid them at all cost.
What Should Millennials Stop Doing with Their Credit Cards?
Don’t take out cash advances
Did you ever receive a seemingly free check from your credit card company? From time to time, banks will mail cash advance checks to their cardholders. If deposited, the check takes out money against your credit limit. This may seem great at first, especially for those who are in desperate need of cash.
However, cash advances can be one of the most expensive things you do with a credit card. Right off the bat, the bank charges you a fee for taking one out. This is typically anywhere between 3% and 5% of the total sum. With a regular credit card purchase, you have a month to pay it back without incurring additional charges. The same is not true of a cash advance. Interest begins to accumulate on the balance immediately. Worse yet, the interest rates on cash advances are typically much higher than that of regular purchases. It’s not uncommon to see cash advance APR of 25% or more.
Checks aren’t the only form of a cash advance. There is a host of credit card transactions that will count as cash equivalent, and therefore register as a cash advance. This includes charging casino chips, lottery tickets, or cashiers checks to your card.
Don’t carry a balance or overspend
No one should ever spend more money than they can afford to pay back at the end of a month. This is a rule everyone should live by, not just millennials. Consumers should always keep their budget in mind when using a credit card. Never confuse your spending limit with your credit limit. Doing so creates the risk of charging too many things to a credit card, inevitably forcing the cardholder to carry a balance. No amount of cash back or rewards will ever make paying interest on your credit card worth it.
Some people find themselves in financial situations that make them unable to fully pay off a credit card bill. If that describes you, it makes sense to shop around for a low or zero interest credit card. This will minimize your expenses while you work on getting back on your feet. Millennials who are already stuck paying down high interest on an existing credit card should look into opening up a balance transfer account.
Don’t miss your due dates
Not paying your credit card bill comes with more financial downsides than you can imagine. Before anything else happens, most credit cards will charge you a fee for every late payment. Typically the charges get as high as $35. If you continue missing payments, the bank can also impose a penalty APR. Today, the practice seems to be going away amongst larger banks. However, some will still kick your interest rate up to 29.99% for missing payments. All of these things are small potatoes compared to the damage it can do to your credit score. Your FICO score will take a severe hit once the banks report your missed payment to the credit reporting agencies. Millennials have the largest population of individuals with a FICO 8 score below Young adults don’t always have a good deal of savings, and their irregular cash flow may strain their budget. When their credit card due date comes around, it may be difficult to find the money necessary to make the minimum payment. Luckily, federal law mandates that your credit card bill is due on the same day every month. That gives you time to prepare, as a bill’s due date should never surprise you. Mark it in your calendar, and budget accordingly.
What Are Millennials Doing Right?
The news isn’t all grim. The study showed young adults were more likely than other age groups to shop comparatively for a credit card. Nearly half (46%) said they compared different options before applying. Only 35% of the entire population did the same. The older a consumer was, the less likely they were to shop around. Just 26% of those above the age of 55 compared different card offers.
Comparing cards before applying is crucial. There is no ‘one size fits all’ credit card that will be good for everyone’s finances. Things like how much you spend, whether you pay your balance off in full and whether you can stay on top of updates are important. The choice isn’t splitting hairs either. Using and paying for things with a credit card tailored to your needs can mean a difference of hundreds of dollars per year.
Many FinTech companies have built dynamic apps that help streamline this process – otherwise comparing cards on your own can be a bit of a daunting task. Younger consumers tend to be more in-tune with this technology, which could be one potential explanation for the higher comparison-shopping rates.
This story originally appeared on Forbes.