Credit Card Mistakes You Should Avoid
Credit card debt is a huge problem in this country. For every American household that has at least two credit cards, the outstanding debt on these cards is around $15,500. It doesn't take a financial genius to figure out that if you only pay the minimum each month you will be carrying this old debt for decades! No one wants to be burdened with this type of overwhelming debt.
For whatever reason, many people continue to use credit cards in a reckless manner (that is, funding a lifestyle which they can't afford). Whether it's due to confusion or just plain carelessness, the results can be damaging and costly. It only takes one mistake, such as a late payment, for you to be hit with a higher annual percentage rate, exorbitant fees, and even lower credit limits.
If you choose to use credit cards for purchases, it's your responsibility to know the terms and conditions of each specific card and to use your credit wisely. Being aware of the more common mistakes people make when using credit cards can help you avoid making them.
Credit Card Mistakes to Avoid
- Making Late Payments. Studies indicate that this is the biggest and most common mistake people make when managing their credit cards. Unfortunately, one late payment can create a host of problems. The consequences can be late fees, lowering of your credit limit, and an increased interest rate. The bottom line is that any or all of these occurrences mean more money down the drain for you. Also, if your payment is more than 30 days late, your credit score can really suffer. CreditCards.com reports that a single 30-days-late payment can negatively impact your credit score by 60 to 100 points!
- Paying Minimum Amounts Each Month. Almost everyone knows that you should pay more than the minimum amount due on your credit card bill every month. But actually doing it is another matter entirely. Yes, you can keep your account current by only paying the minimum due. This is exactly what the credit card companies want you to do. Their huge profits come from consumers who do exactly this. It means you pay more interest charges each month. It also keeps you in debt for years to come. In a perfect world, you should only charge what you can afford to fully pay off each month. If you have an outstanding balance, always try to pay more than the minimum required. This will allow you to pay off your debt more quickly (assuming you don't keep charging new purchases) and can save you hundreds (or even thousands) of dollars in interest fees.
- Using All of Your Available Credit. It's tempting to use your credit cards for purchases especially when you have available credit on them. But financial experts recommend that you use no more than 30% of your credit card limits at any given time. How much you owe has a direct bearing on your credit score. If your credit cards are maxed out it can significantly lower your score. The ideal situation is to only charge each month what you can afford to fully pay off. This keeps your debt ratio low but also keeps your account current and active.
- Taking Cash Advances. When you're stuck for cash it's easy to get a cash advance on your credit card. But unless it is a true emergency, avoid using this service. Cash advances generally come with very high interest charges and sometimes an additional fee. Plus the interest starts accruing immediately. There is no grace period with a cash advance. If possible, investigate other means of getting cash.
- Ignoring Your Monthly Billing Statements. Whether you receive your statements online or through the mail, it is important to open them every month and look them over. You should check to see that all of the purchases are legitimate- identity theft does happen and you need to be vigilant. Report any errors or discrepancies to your credit card issuer. Double-check the due date to avoid any late fees.
- Being Charged Foreign Transaction Fees. Any time you travel outside of the country, you should call your credit card company and make them aware of your travel plans. Find out about any foreign transaction fees associated with your card. The majority of Visa and MasterCard issuers charge a transaction fee which is 3% of the total purchase price. If you frequently travel abroad, it might be smart to shop around for the credit card that charges the lowest fee. Many banks also charge these fees for debit transactions as well as ATM withdrawals. Contact your financial institution for more information.
- Only charge what you can afford to fully repay each billing cycle.
- Always pay your bills on time.
- If you have an outstanding balance, always pay more than the minimum amount due.
- Avoid taking cash advances.
- Check your billing statements each month for errors and/or discrepancies.