Credit card debt is something that millions of people deal with every day. While having some debt can be manageable, taking on too much can have a significant impact on someone’s ability to buy a home or car, or even take a vacation.
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Luckily, it’s easy to avoid misusing your credit card in a way that can have long-term negative impacts on your overall financial situation. To make sure you’re making your credit work for you and not against you, make sure to avoid these common missteps. Steering clear of these pitfalls can help keep your credit score in good shape.
Only Making Minimum Payments
If you have a credit card, always pay above the minimum payment each month. If you’re only paying the minimum, interest will start to add up quickly, making it more difficult to ever pay off your debt.
Making more than the minimum payment helps you pay off the debt faster. Ideally, try to pay off the full balance on every card each month. Doing so will keep you from incurring interest charges or other fees that add to your balance.
Failing To Make Payments on Time
Paying credit card bills after they’re due is can often lead to a penalty charge, extra interest, lose out on benefits or cost savings, all while your balance continues to grow.
To keep this from happening, try and make your payments early each month so you’ll avoid any such penalties. Keep an eye on payment due dates when you receive statements or bills so you won’t be late. If you can, set a reminder or look into autopay options to make sure you’re staying on top of your monthly billing cycle.
Taking a Cash Advance
A credit card is not the same as an ATM card. A credit card is intended to be used as a method of payment for transactions, not as a cash withdrawal tool. Even low-interest credit cards can carry substantial hidden fees — in some cases up to 30% interest — for a few bucks in cash.
Not only that but taking a cash advance against your card will use up a portion of your available credit. So, along with those extra charges, it becomes even harder to pay back the money you took out. The best advice here is just to outright avoid this practice. Remember, a cash advance is among the things you should never put on a credit card.
Overspending or Wasteful Spending
While a credit card isn’t an ATM card, it’s not a license to spend, either. Just because a credit card company has approved your application, issued you a card doesn’t mean you should run out and buy things you don’t need.
Essentially, a new credit card won’t change your monthly income, so it shouldn’t change your spending habits.
Not Being Aware of Outstanding Balances
A credit card has a set credit limit that indicates the maximum you are allowed to charge against the card before paying down the balance. This is done both to prevent cardholders from spending too much and help curtail the impact of fraud or charges on stolen cards. However, even with this cap in place, it can be easy to spend beyond your means.
Consumers with credit cards should periodically check their balance throughout the month to keep tabs on how much they’ve charged. Failure to stay updated on this can leave you surprised with a large bill at the end of the month you may not have budgeted for. To avoid this specific type of sticker shock, stay on top of your account balance and track your spending habits from month to month.
Immediately Maxing Out a Card
Maxing out a credit card as soon as they arrive is a terrible idea. Not only does it mean that a huge bill’s on the way, but it also leaves you with no available credit to use for purchases until it’s paid down. This includes emergencies, like if your car breaks down, or you’re dealing with unexpected medical bills.
If you’re not able to pay this kind of bill in full, you’ll likely have to pay off your bill over time, which will add interest fees and possibly other charges along the way. Additionally, this behavior shows potential lenders you can’t handle credit responsibly, making it harder in the future to get another line of credit or make a major purchase.
However, if you’ve had a card for a while and are in good standing, and think you’re getting too close to your credit limit over a planned large purchase, ask the credit card company to raise your limit. Being proactive shows lenders you can use credit responsibly.
Not Using Cards for Their Intended Niche
Many credit cards are designed with specific purposes in mind and offer special cardholder benefits. For example, if you travel a lot, use a card that offers travel incentives and protections. This can help reduce fees and other charges over time, and lets you get the most out of every line of credit.
Letting Someone Else Use Your Card for a One-Off Purchase
If you let someone use your card, those charges will be in your name, regardless of whether the individual pays you back. You also open yourself up to additional liability — like if someone uses your card to book a hotel room and trashes it.
Applying For More Cards Than You Can Afford To Pay Off
Don’t apply for a bunch of cards you don’t need or won’t be able to stay on top of. Just because you’re offered a credit card, that doesn’t mean you need to apply. Lenders tend to view each card as a potential liability, and this can prevent you from getting a new or better card, as well as a home or car loan. Cards can also be stolen or misplaced; and each additional card means more work that it’s not being used fraudulently.
Failing To Read the Fine Print
This is one of those ‘if it’s too good to be true’ situations. Cards can lure in applicants by dangling things like low introductory rates. However, these low rates often reset after a specific period of time. Some cards can also charge fees that start after an initial period. These might seem like small expenses, but they add up, and can make it difficult to ultimately pay the balance down.
Just because a card looks appealing initially doesn’t mean it will still look good in two years from now. Make sure to read the fine print, and see what the rates will look like after introductory period ends.
Choosing a Card for the Wrong Reasons
Before signing up for a credit card, look at all your options. Not everybody needs a credit card, and some even prefer debit or ATM cards as an alternative.
Of course, credit cards can be a great fit for some, but before choosing one, compare the top candidates to find the one that’ll benefit you the most long term. Being selective here is critical, as it’ll keep you from jumping at the offer that shows up in your mailbox.
When you find the right card, it’ should be one that you can use for years, and ideally provide you benefits that can help make your spending work for you. The wrong card can leave you in a bad situation, facing charges you didn’t anticipate or benefits that you won’t be able to use.
Transferring Balances Too Often or at the Wrong Time
A balance-transfer feature is a common tactic by credit card companies to attract customers. However, moving a balance from one card to another can often make it harder to pay off your debt. Transferring an outstanding balance can be a good step if you’re able to migrate from a high-interest to low-interest card, but this step should be used sparingly and only after careful consideration.
Using credit cards effectively can be complicated. It’s easy to make a mistake that leave you with far-reaching consequences, including debt that can take years to pay off. Before applying for or using a new card, do your research so you avoid these potential pitfalls.
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Christian Long contributed to the reporting for this article.