Young Scrappy Money Podcast Ep. 010: Uncovering Sneaky Banking Fees with Scott Henderson

Do you know how much banking, credit card, and investing fees are actually costing you? Scott Henderson of Simplifinances joins me on the podcast, and we break down what fees to be on the lookout for!

Resources from this episode:

• Simplifinances, the hub of Scott Henderson’s blog and coaching work
• Scott’s Instagram page: @simplifinances
• Mint.com, which is not only for budgeting, but also will help give you clarity about what types of fees you’re paying.
• USAA, a bank that reimburses all the ATM fees!
• CapitalOne, a bank that has no fees on checking and savings accounts (plus up to 50 savings accounts, as desired!)
• CreditCards.com, a great resource for checking out reviews and comparing various credit card offers 
• The Young Scrappy Money Academy Digital Subscription Service
• Young + Scrappy, home to Michelle’s work as a financial advisor and financial coach

Full transcript:

INTRO: [00:00:00] Hello. And welcome to the Young Scrappy Money podcast. I’m your host, Michelle Waymire. And each week, I’ll be bringing you tips and tricks to help you take control of your finances as well as interviews with people who made big financial changes in their own lives. So join us. And we’ll help you get your financial s**t together.

MICHELLE: Hello, everybody. Welcome, welcome. Here is another episode of the Young Scrappy Money podcast. And today, I wanna talk about something that, for some of you, is like a boring, necessary fact of life. And so I’m talking, of course, about fees.

Fees are one of those things that the word itself is just sort of associated with this like, ugh, what a dreadful situation. Nobody really likes fees. Nobody wants to pay them. But we’ve kind of accepted at this point that they are unfortunately a fact of the financial world.

However, you do have control over more fees than you realize. And so in order to kind of figure out what’s going on there, I have with me today Scott Henderson. He is an accredited financial counselor who’s been providing coaching and counseling to young people for three years. He’s also currently pursuing a master’s degree in personal financial planning. And he graduates in December, which is very exciting. Yay, Scott.

So I’m here to pick his brain today. And he’s gonna tell us about fees in the financial world and which ones you can control and which ones are unavoidable. And hopefully that will give you a little bit more clarity about, you know, trying to only pay for the stuff that’s actually worth paying for. So thanks, Scott, for coming on. I’m excited to interview you today.

SCOTT: Thank you. I’m also excited to be here.

MICHELLE: I think to kick things off, it’d be useful for you to tell us a little bit more about your background. So what got you into financial coaching and counseling?

SCOTT: Yeah. So what got me into financial coaching and counseling was I came from a family background where debt literally destroyed our family. And so I had a single mom who raised five kids on her own. And she instilled in us, you know, a hard work ethic and always taught us to save, save, save no matter what so we can avoid going into debt. And so I started reading a lot of personal finance books from a young age, and have just been really interested in it for a long time, and so decided to make a career out of it.

And while I was an undergrad, I decided to work at a financial literacy center that we had on campus, where I eventually became an accredited financial counselor. And I was able to work with, you know, Millennials, younger people, people in college on helping them make smarter financial decisions and understand the type of financial decisions they’ll be making now and how that will impact them going forward into the future. And so that’s really what got me interested in financial coaching and counseling was being able to help people the best that I can. And so where I’m at currently is pursuing a master’s degree in personal financial planning, hoping to, you know, really solidify that understanding to be able to help people the best that I can.

MICHELLE: Awesome. First of all, holy s**t, I did not know that there were colleges that had personal financial literacy centers, which is very, very cool.

SCOTT: Yeah.

MICHELLE: There needs to be so much more of that. And—

SCOTT: There is. And they’re actually fairly new, I think. In 2008, 2009, you started to see some pop up at different universities across the country. But more and more are starting to adopt this, you know, program of, hey, students don’t just need help with financial aid and student loans. There’s a whole realm of other areas that, you know, we could help college students get through college. And it comes down to helping them save, and budget, and being able to avoid fees, and be able to get through college without incurring as much debt as you can, so.

MICHELLE: Yeah. So you have a particular expertise in helping people understand the fees associated with debt, and which banks to use, and which credit cards to use. I know this is definitely— these are all questions that I get pretty frequently. It’s just, how do you even know how much you’re actually paying in fees?

And so what I wanna do today is kind of go through each of these topics in turn and just get your perspective on how to understand what it is that you as a consumer are actually paying. So I think let’s maybe start with debt, you know, figuring out how to understand your debt and how much it really costs to borrow money. So how much does it really cost to borrow money?

[00:04:55] SCOTT: Yeah. That’s obviously a question that depends on certain circumstances. But, you know, it’s crazy the amount of fees that we’ll pay over our lifetime, whether that comes to interest on credit cards that we’re paying, bank overdraft fees, bank maintenance fees, ATM fees, all that type of stuff. Although they might seem like they’re small month to month, those can add up to like really significant numbers over, you know, a few years.

And so— and I don’t think most of us realize this until we sort of take a step back and look at exactly what we’re spending and where and adding them up together. And then you can start to see for your own self like, wow, I’m actually— it’s costing me a lot to borrow debt and to, you know, use financial services.

MICHELLE: Yeah, totally. So kind of starting with debt, how can we— how do we even have any idea how much we’re paying in fees? Like how do we figure out what the cost of borrowing actually is?

SCOTT: I think the first thing comes down to tracking exactly what you’re spending. And it doesn’t necessarily mean that— you know, you might look at your bank statements and just check to make sure. I mean, there’s actually a lot of stuff that goes on behind the scenes that doesn’t show up in your bank statements, and so taking a look at, you know, your credit card statements and seeing how much it is that you’re paying in interest each month.

I mean, I wish that there was more I could do to help more people realize just how much they are paying in interest and fees. And honestly, it should be something that is free. I don’t think anybody should have to be paying credit card interest or bank fees. And I think that some of them are unavoidable, like if we’re gonna be borrowing, you know, money for a mortgage or student loans or that type of stuff.

But what I really wanna focus on is more of those fees that we can control. And I think that that comes down to those bank fees and those credit card fees. And so the first step is just understanding what exactly you’re paying. And that takes some time to go through some different credit card statements, banks and just getting clear on exactly what it is you’re paying each month in fees.

MICHELLE: Yeah. Do you have any good resources? So one of the things that I kind of hear people complain about— and this is certainly true for credit cards, which I would consider to be high interest rate debt. Even lower interest rate debt, right? So your car note or your student loans or even your mortgage, it’s not like the interest rate on a mortgage is terribly high.

But if you’re paying that for 30 years, I think people don’t necessarily understand the impact that— you know, the amount of money that you’re paying for the right to purchase $300,000 of home is not $300,000. It’s like $450,000. So do you have any good tips or resources for actually calculating how much interest you would pay over the life of any particular debt?

SCOTT: Yeah. There’s definitely a lot of resources available. I mean, we live in an age now where everything is, you know, accessible and free to be able to learn these things. But it takes a little bit of education. So one software that I’m a big fan of that I recommend a lot of people use is mint.com. I’m not sure if you’ve heard of that.

And basically, what you’re able to do is connect your accounts. And any time you pay a bank fee or interest, it actually would alert you and say, hey, you know, this bank just charged you this much in interest. And so if you didn’t have something like that, you might not have any idea what sort of fees that you’re paying.

But where it really starts to— this idea of avoiding fees really starts to hit home for a lot of young people is when they realize what effect this has over, you know, 30, 40 years. And it comes down to learning about something that’s called the time value of money. And it’s something that not everybody learns. Like we don’t learn this stuff in school.

But each dollar today has a different amount in the future, right? And so when you take into things— into consideration things like the number of years, the interest rate, the amount of debt borrowed, and over a long period of time, what you pay today will be worth way more in the future. And so it could really start to, you know, sabotage your financial situation if you’re paying too many fees.

And so there was a quote, actually, by— it was by Albert Einstein, where he said, “Compound interest is the eighth wonder of the world.” He said, “He who understands it earns it. And he who doesn’t pays it.” So as a young person, when you understand the power of compound interest, you start to see, you know, how is it that it’s working against me? And it could really keep you from reaching your goals down the road.

[00:10:10] MICHELLE: Yeah. I love that quote. And I think it’s really interesting because a lot of us don’t necessarily make that mental connection, exactly like you said, that actually debt and investing are functionally two sides of the same coin. It just depends on what your perspective is, right?

SCOTT: Exactly.

MICHELLE: So if you’re the one making the money, then you’re investing. And if you’re the one paying the money, then you’re in debt, which is so neat.

SCOTT: Yep.

MICHELLE: I mean, it’s— you know, it’s good and bad, right? Because it means that if you do have that education and awareness, then you get to be on the good side of compound interest.

SCOTT: Exactly.

MICHELLE: The grass is greener side of the time value of money equation, so to speak.

SCOTT: Yep, having it work for you instead of against you.

MICHELLE: Yeah. So I think it’s interesting that you mentioned Mint specifically. So, um, if people have listened to this podcast before, I mean, I think I’ve mentioned Mint a couple of times as well. My experience— and it has been largely on the budgeting side specifically, and I’m not a huge fan of it as a tool for building and sticking to a budget.

SCOTT: Yep.

MICHELLE: I think that it’s just lacking a few crucial elements there. But in terms of really giving you the awareness of like what fees are coming in, that’s so interesting. Because I have not actually even considered using it just for that purpose.

SCOTT: Yeah. There’s a lot of features you could set up where, you know, you could have it alert you the second somebody pulls your credit report. Or, you could have it alert you whenever a bank charges a fee. And so I would agree with you that Mint is lacking in certain areas as far as planning for the future. But as far as looking back in the past on where you’ve spent your money, I think it’s an excellent resource.

MICHELLE: Yeah. So I wanna talk then about banking fees because I think this is a really good segue. A lot of people don’t necessarily know how banking fees work, or like maybe we don’t have good, proactive awareness of what fees apply to our bank accounts. And so I’m wondering if maybe you could just kind of run through a list of banking fees and just explain kind of what they are and how we’ll know whether we’re paying them.

SCOTT: Absolutely. I think some of the big fees that we pay for banking is, one, overdraft fees. I think it was in 2016 I first learned that Americans had paid like $32 billion in overdraft fees in the previous year. And I was just like, man, that is just an insane large number.

MICHELLE: That’s stupid money. That’s so much money to be giving banks for like miniscule overdrafts usually. Wow.

SCOTT: Exactly. And so I actually looked up what people paid in 2018 in bank fees. And it’s actually about $2 billion more. So it’s about $34 billion is what consumers paid in overdraft fees. And an overdraft fee is simply someone that’s in a position where they don’t have any money in their checking account. And you purchase something. And since you don’t have enough money, what you’re doing is you’re borrowing a small amount of money from a bank so that they can cover the purchase of that overdraft fee.

And so— but the fees on the overdraft fees are just— they’re crazy. Because it’s usually a set high fee. So most banks that I’m familiar with will charge $35 for an overdraft fee. So for example, if you’ve got $25 in your checking account, and you make a purchase for $50, so you’re basically borrowing $25 from the bank. But you’re paying way more than that in a fee of $35.

And so I just think that this is something that’s— it is avoidable. It just takes a little bit of planning and making sure that you don’t let your balance get too low. But clearly, there’s a lot of people that are paying these fees, or else we wouldn’t be paying $34 billion in fees. So overdraft fees I think are a big one that you could definitely avoid.

And some of the ways to do that are you could just turn it off. You could let the bank know like, hey, if I don’t have the money in my checking account, I just want it to decline. I don’t want to have to pay that fee.

The second thing is is I think a lot of banks are being a little bit more lenient on this one as far as allowing you to connect your checking account to like a credit card. So for example, if you do have an overdraft fee, instead of borrowing it from the bank and paying an exorbitant fee, you’re actually gonna use your credit card to pay that. And then you can just pay your credit card off. So you’re essentially— you avoid the overdraft fee completely.

MICHELLE: Yeah. So I’ve definitely worked with clients who had that issue before. And if you think about it from a timing perspective, even if it only happens like twice a month, if you get like one transaction that goes wrong the day before you get paid, but it happens every time you get paid, that’s like $70 a month. That’s more expensive than Netflix. That’s more expensive than your gym membership. That’s more expensive than cable.

SCOTT: Exactly.

[00:15:00] MICHELLE: And like nobody— nobody worries about it in the same way that we worry about how much we’re spending on like groceries or subscriptions. Like we don’t manage banking fees in the same way we manage our other expenses.

SCOTT: Exactly. A lot of us think, well, that’s just the cost of doing banking, you know. But it’s not true. Most of these tools, like a banking and a savings account, should be, I think, totally free. And so you shouldn’t have to be paying some of these fees. And there’s definitely other fees associated with it that we could avoid.

MICHELLE: Yeah. If you— if you’re paying $70 a month for your bank, you better go in there with like a latte with your name on it or like a dry martini with olives. And then I want them to like give you a five-minute comforting backrub and then ask how they can help you. Like you better be getting really bang-up service for 70 bucks a month— not just, whoops, you overdrafted by $5, and now you owe us $35. Um—

SCOTT: Exactly.

MICHELLE: But that’s a soapbox.

SCOTT: And if you take the, you know, population of Americans, and you divide that by the $34 billion in overdraft fees, that’s about $106 per— like for the year that people are paying in overdraft fees, so.

MICHELLE: Yeah. Gosh. That’s— that’s good vacation money right there.

SCOTT: Yeah. And then you add up those other fees, like ATM fees, maintenance fees, and credit card interest, I mean, we’re talking a large number.

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MICHELLE: So you hit on a couple of other fees just now. So you mentioned ATM fees, maintenance fees. Talk to me a little bit about those and what other fees you might find from like the banking experience.

SCOTT: Yeah. So another big one, this is actually something that people will pay more in fees over a year than overdraft fees is actually ATM fees. And these are little fees that you think, oh, $3, $4 each time I need to borrow ca— or take out cash from my account doesn’t seem like that big of a deal. But on average, apparently people will take money out from an ATM about 10 times per month.

And I thought that that sounded a little bit high. And so I did the math and did, OK, let’s say that on average people took money out of an ATM eight times in a month. The average fee for an ATM is $4.68 because there’s two fees associated with it when you borrow money out of an ATM. If you use an ATM that’s not your bank, then there’s, you know, an outside service fee. And then you’re also paying the fee to take the money out of your own bank.

And so that can add up. And that’s why, on average, we’re paying about $4.68 in ATM fees. So I mean, if you do the math over a year, eight times per month from an ATM, you’re paying $450 a year.

MICHELLE: Jeez. I’m a really blatant Millennial. Like I never have cash on me, which is a problem when I need things like— if I— on the very rare occasion I ever need to tip somebody in cash, like I’m always pulling lint out of my pockets. And so it— admittedly, it seems to me a little bit crazy that anybody would go to an ATM eight times in a month.

Because that’s so unlike my personal experience. But if you’re not necessarily used to using a debit card all the time, or you prefer a cash-only lifestyle, that in and of itself can be so very expensive, as you pointed out. Is there a way to avoid things like ATM fees or maintenance fees?

SCOTT: Yeah. And I would agree with you. I’m the same way. I hardly carry cash at all anymore. I’m mostly completely digital. And, yeah, there’s definitely ways to avoid bank fees. I think, one, if you decided not to use cash a lot, that’s one way to save on those bank fees.

But there are actually banks— one of the— so one bank I bank with is USAA, where they will actually reimburse me up to $15 a month in ATM fees. And so I’m actually able to use any ATM across the country to, you know, access funds from my online checking account. And then I actually see a $3 transaction come back into my banking account.

And so that’s nice. That’s one way to avoid those fees. But honestly, I think in 2018 I probably pulled money out of an ATM like three or four times. So there’s definitely—

MICHELLE: They creep up on you.

SCOTT: Yes. And I’ve actually heard of people who have needed to get cash and only had a credit card. And so they’re like, well, I’ll just take a cash advance from an ATM on my credit card. And those also have like a $35 fee to do that. So that’s something you definitely don’t want to do.

[00:20:03] MICHELLE: Yeah. I feel like my superpower of being a little bit cheap sometimes means that if I am staring down the barrel of an ATM fee, I will drive to my local grocery store or pharmacy. And I’ll do that cashback option.

SCOTT: Yep.

MICHELLE: Because if I’m going to spend $3, I would much prefer to walk out of the store with like a soda and a Snickers bar rather than giving it to a bank. But that’s just me.

SCOTT: Yeah. I think that’s a great way to avoid that is if you’re grocery shopping, and you want a little bit of cashback because you know you need some, then that’s also another way to avoid that.

MICHELLE: So let’s talk about maintenance fees. What is a maintenance fee at a bank? And like what are you paying for? Why do we pay these fees?

SCOTT: Yeah. This is interesting because it’s pretty common among some of the bigger banks. You don’t typically see it with smaller banks or credit unions. But, you know, some of these bigger banks, like Chase, Wells Fargo, they might charge you an account maintenance fee if you don’t meet certain requirements.

So some of those requirements might be having a minimum account balance that’s an average for the month. So like a lot of times, banks will have a $500 minimum account balance. And if you drop below that for, you know, a few days, then the average account balance might go below $500. And you might be stuck with a $10 account maintenance fee.

And another thing is if you have direct deposit set up from your employer, and you have a certain amount of money going into your checking account from your employer, then you can avoid those fees. But if you don’t keep a lot of money in your checking account, if you don’t have an employer who’s depositing the money into that account, then you’re paying $10 a month to have an account that should essentially be free. And I mean, that adds up to about $120 per year.

And so this is— you know, this is something that’s definitely avoidable. But doing the math and kind of looking at what people paid in account maintenance fees, people pay about $13.58 on average per month just to have a checking and savings account. And so that adds up to about $162 per year. And so it might seem small. But like I said, these small fees start to add up.

MICHELLE: Yeah, totally. Because I think it’s interesting. So like $160 for maintenance fees, and then you mentioned ATM fees. And we talked about interest. And we talked about overdraft fees. So like what’s our running total so far? Like how much money are we paying per year based on the things that we’ve talked about?

SCOTT: Well, I haven’t actually mentioned how much people pay on average in interest, as far as like credit card fees. That’s actually a number that’s way bigger than any number we’ve talked about so far. And in 2018, consumers paid $104 billion in credit card interest.

And so if you, you know, divide that up among the population, that’s about $325 per year in credit card interest. So when you add together account maintenance fees, overdraft fees, ATM fees, and credit card interest, just those alone— there’s a lot of other fees that we haven’t discussed. But just those four alone adds up to $1,043 per year.

MICHELLE: Wow. I’m like thinking right now of like, what would I do if I just had like a bonus $1,000? And you’re, like a lot of us— I am not— many other people who are not me are about to get a tax refund. And so when you think about the windfall that comes, and like how much excitement you feel about getting that refund check, imagine if you were to like cut out all of those fees and put the money in a separate account. If you had that extra 1,000 bucks a year, like what would you do? Where would you go? It’s such interesting food for thought.

SCOTT: Exactly. I mean, you could go on a pretty incredible trip for 1,000 bucks, especially as an individual, so.

MICHELLE: Yeah. Gosh. So I think kind of getting back to this idea of fees being something that we can control, that we can manage, if we’re willing to seek out the information, I’m interested in hearing— I know you mentioned USAA. But I think for folks who don’t necessarily have military backgrounds or family members with a military background, that one can be a little bit prohibitive. It’s hard to get a foot in the door unless you’ve got relatives who did that already. Are there any other banks that you like or would recommend to somebody who’s looking to minimize fees, you know, people you think might be more fair?

SCOTT: Yeah. So based on my experience, when I was younger, I had a system set up that I used to sort of manage my money. And I had different accounts for different things that I would actually divide up cash and put them into different buckets. And so I didn’t want to continue to use cash.

[00:25:00] So I decided to open up one checking account and five savings accounts with one of my banks. And I thought that was a great idea. But then I realized each of those accounts, I was charging like $5 per month. And, you know, it took me just a couple weeks to realize that. And I’m like, hold up, I don’t wanna have to pay fees for different savings accounts.

And they were like, oh, well, that’s just part of it. And there’s nothing that we can do. And I said, well, then I’m gonna go look for another bank that’s not gonna charge me fees to have savings accounts. Because I know that they’re out there. And so I actually went to a different bank. And before I left, one of the bankers was like, well, actually, we could probably take a look at waiving those fees.

Because, I mean, these banks want your business. And I think they’re probably— paying account maintenance fees for having multiple savings accounts isn’t like something that you absolutely have to pay. I do know that there have been times where people have been able to negotiate not having to pay those fees. Because most banks would rather waive that fee than lose you as a customer.

And so I think it’s important to first negotiate and see, OK, is this absolutely necessary for me to pay those fees? And if not, you can get rid of them. Or, you can just leave and simply go to another bank. So a lot of— like I mentioned, a lot of smaller banks and a lot of credit unions typically won’t charge you a fee for having multiple accounts.

So I know one of my credit unions, I talked to them. And I asked, how many savings accounts could I have without paying any fees? And they said, you could have as many as you want. And I’m like, you mean as many as I want? And they were like, yep, we’ve got one customer right now that has 60 savings accounts.

MICHELLE: Oh, s**t. Challenge accepted.

SCOTT: And I was just like— so I’m like, that’s pretty cool, you know. So there are banks out there that won’t charge you fees to have multiple accounts with them. And so I definitely think you should be avoiding those at all cost.

MICHELLE: Yeah, wow. I will also give a little bit of a shoutout. I try not to be like too wall of shamey. But I will tell you that when I work with people who have like Wells Fargo accounts or a Bank of America account, it usually does tend to be the really big banks— which I’m like, one, you have so much stinking money.

SCOTT: Yep.

MICHELLE: How are you— why are you charging like $10 to people who do not have money in their checking accounts? Literally, shame on you. I am wall of shaming a little bit. Um, but I’ve also found that online banks actually tend to be pretty low fee just by virtue of the fact that they’re not having to pump all this money into keeping physical branches open and maintaining a bunch of like in-person employees.

And so if you are somebody who doesn’t necessarily require a lot of in-person servicing of your account, you might save a lot of money switching to an online bank. At least that was my experience when I was in college. I went to the University of Chicago. And Citibank was like the only game in town. And so they kind of hustled on the street corners to get college students to come in and open like college checking accounts, which is good.

And then they’re like, this is free. You don’t even need to pay us anything. And then as soon as you graduate, they’re like flipping that fee switch on. They like have a big lever on the wall. And they crank that right on down, and all the fees turn on.

SCOTT: Exactly.

MICHELLE: And so I recently switched to Capital One, which is an online bank. I will tell you, as full disclosure, I do not get paid by Capital One to tell you that I think they’re good. I just think that they’re good. And I feel like you should know that. Capital One, if you’re listening, and you wanna pay me money to sponsor this podcast, I’ll just let you know where to send a check.

I’m kidding. I don’t take commissions. Um, all that to say, I really do— I have found— because Capital One allows you to have up to 50 savings accounts without any fees, which was also like mind-blowing to me.

SCOTT: Wow.

MICHELLE: And now, I don’t have 50. But I have a lot of savings accounts because they’re free.

SCOTT: That’s awesome. And I do know that Capital One has sort of stepped up their game in the past couple years. And they’ve been doing a lot of great things. So I would definitely second that.

MICHELLE: Yeah. So I wanna get— I wanna get back since I feel like we’ve talked about banks pretty thoroughly, but we haven’t talked a ton yet about credit cards. So you mentioned credit card interest, which is, as we all know, a huge problem. And when people are struggling to pay down debt, it usually is because the interest rate is so high that their debt payments are doing very little work towards actually making the debt go away. What other fees are associated with credit cards?

[00:29:50] SCOTT: So some other fees that maybe don’t come out directly as a fee, but just the simple fact of having a credit card might cause you to spend more money. And there’s obviously this big debate in the world of personal finance on whether you should have a credit card or not. And I’m a proponent of them. I think that they are— I like to think of them as free financial tools that’ll help me reach my goals faster. And so as long as you use them responsibly, I think that they can be powerful tools.

But, uh, so now that I’ve kind of got that out of the way, that I’m not completely against credit cards, but with that being said, if you do have spending problems, if you tend to find yourself spending more, and you can’t pay off the balance each month, then I would definitely avoid credit cards. But I think that what one study showed is that people are more likely to spend about 17% more on a purchase than they would if they were using cash. And cash is— it’s tangible. It’s a lot harder to separate, you know, from.

You feel like you’re giving something away, whereas a credit card, you’re just simply swiping it. So there’s a lot of psychology that goes into how consumers will spend more when they don’t feel like they’re losing as much, and they feel like it’s just something simple. So, yeah, I would— I would probably classify that as a fee, that realizing you’re probably spending more if you’re using a credit card because it’s not your money than you would if you were actually spending cash.

MICHELLE: Oh, yeah. We get that good, good instant gratification feel when we buy something on a credit card. And we really tend to screw our future selves over quite a bit there.

SCOTT: Exactly, yeah. And so avoiding interest on credit cards can be a little bit difficult because of the billing cycles and when those come out. And so typically, if you make a purchase, you have 30 days to pay that purchase off before you’ll start paying interest on that. And so I typically recommend that people that make a credit card purchase just go in the next day or every few weeks and just pay off the full balance so you don’t even have to worry about, OK, when am I gonna start accruing interest on this purchase?

But if you find yourself in a position where the credit card debt is more than you’re making each month, and you can’t pay off the full balance, then I would just stop using it until you can get that full balance paid off. Because, I mean, we’re talking credit card interest rates of 15% to 30%. And that’s a really high amount.

MICHELLE: Yeah. 15% is very forgiving for a credit card, at least in my experience. Like it really is like 20% to 30% for most of them that I see.

SCOTT: Exactly. And that adds up a lot.

MICHELLE: Yeah. So I’m curious then about your views on like annual fee credit cards. So in addition to interest, you know, a lot of cards will say, pay us $150 a year. And the really like fancy credit cards, which I guess have perks or whatever, I’ve seen even higher than that. So in your opinion, is it worth paying an annual fee to use a credit card?

SCOTT: I think in certain circumstances, yes, as long as the benefits, you know, outweigh the fees that you’re paying. I mean, I’ve seen annual fees of like $400. But you’re also getting an incredible amount of benefits in cashback. And so some people might be able to justify, hey, I could pay that $400 because I’m getting a lot more in value back just simply spending money on this credit card.

But I’m typically a proponent of avoiding all fees at all costs. And I think that, for the most part, you’re probably gonna be better off if you have a credit card that doesn’t have an annual fee. Because it just— it seems like, for the most part, they are extra fees that might take away from the cashback or the benefits that you could be getting. So there’s definitely a lot of credit cards out there available.

And that’s— you know, it’s an area that can be really confusing for a lot of people. And, you know, do I really have the best credit card? What other credit cards are out there? And I think just understanding— once you start to understand what benefits different credit cards have, you’ll start to realize what the good credit cards are. And so that’s kind of my take on that.

MICHELLE: Yeah. I think it is true that it’s a cost-benefit analysis. Because, I mean, I use the Delta SkyMiles card. And it has a fee. But on the other hand, all of my bags are free.

SCOTT: Yeah.

MICHELLE: So like I travel a lot. And I think it— you know, that I know pays for itself. But if I were using that card and just never traveling, I don’t think I would wanna pay the annual fee that it currently has.

SCOTT: Exactly. And if you’re traveling a lot, that might totally justify paying for that fee. Because those baggage fees can definitely add up. One of the credit cards that I have is the— so I’m a Costco member. And having the Citi card, you know, there’s a lot of benefits too to having that.

[00:35:06] And just having the credit card, then you don’t have to pay an annual fee on that credit card. But when you pay your Costco membership, that covers the fee for that Citi card. And so you can get up to like 5% cashback on certain purchases, which I think is really high.

But there’s some other credit cards that I think are really beneficial. One of them, you know, it has an annual maintenance fee of I think 95 bucks. But it’s the Chase Sapphire Preferred. I know a lot of people have gotten a lot of value from that card and just some of the perks. I’m not somebody that, you know, teaches travel rewards or anything like that. There’s a lot of stuff you can find online about that.

But if you can sort of learn how to play the game when it comes to credit cards and use them responsibly, then they can add a lot of value. And they’re essentially— you’re not paying a single thing for using the card. The banks are actually paying you to use the card.

MICHELLE: Yeah. Yeah. That’s super neat. Do you have any good tools or recommendations of places where, if you wanted to research a bunch of cards in one place, it would have that information?

SCOTT: So I know that there’s a couple of places online that you can compare credit cards really easily. One of them I think is just creditcards.com. And that gives you just a basic overview of what different credit cards are available.

But understanding where and when to open up a credit card is kind of another whole conversation on credit and understanding how to do that. And I’m sure you’ve probably covered that in some of your episodes. But it definitely takes some understanding of what card is going to fit you.

Because there’s so many cards with different benefits. But like you said, you travel a lot. And that one makes sense for you. Somebody might not ever travel. But they want, you know, cashback because they like to use that money on other things.

MICHELLE: Yeah, totally. Cool. So I think we’ve pretty much thoroughly fleshed out all of the fees associated with debt and banks and credit cards. Any other sort of parting thoughts on how somebody can really be proactive about understanding their fees and finding alternatives that might be a little bit cheaper?

SCOTT: Yeah. So one of the big things that I help people understand is obviously these fees and eliminating them. But if you find yourself paying these fees, you need to do one of two things. And one of them is really just simplifying your life. I think if you could figure out how to automate your finances and to, you know, cut out a lot of the unnecessary things, you’ll be able to stay on top of your finances a little bit easier. And I think that by simplifying your life, simplifying your finances, you’ll be able to stay on top of these things a lot more to be able to set yourself up in the future to actually start achieving your financial goals.

MICHELLE: Yeah. I love it. Cool. So if you’re listening to this podcast, and you’re like, this Scott guy, he’s so legit— let me work with him and get my finances simplified. You can actually read about Scott’s work at simplifinances.com, which is S-I-M-P-L-I-finances.com. And I’ll put this in the show notes.

So definitely feel free to check out the resources section of this page. And we’ll make sure that all of the good links are in there. You can also follow him on Instagram @simplifinances. So if you’re looking for that sweet photographic inspiration of getting your financial s**t together, definitely follow him there. Check out his work— very, very good stuff.

Also, if you’re listening, I would be so very appreciative if you did us a solid here at the Young Scrappy Money podcast. Go ahead and rate us. If you liked this podcast, please, please give us the stars that we oh so crave. Give us— give us the comments and the loves.

And if you like this, and you want to hear more, just tell people that you know that we are out here talking about money thangs. So I think that’s it. I think we got all the good stuff out. Thank you, Scott. I really, really appreciate you digitally stopping by and schooling us all in all of the bank fees.

SCOTT: No, thank you. I know, like you said at the beginning of the episode, this isn’t the most exciting topic. But it can definitely have a big impact on your life. And it doesn’t need to be boring. So I appreciate you inviting me to talk about this.

[00:39:55] MICHELLE: Awesome. Thanks.

END CREDITS: I hope you enjoyed this episode of the Young Scrappy Money podcast. If you want to read about my work as a financial advisor and financial coach, you can do so at www.youngandscrappy.com. That’s www.youngandscrappy.com. Thanks again for listening.