Credit card debt is an issue that affects millions of people. It can prevent them from buying a home or car, or even taking a nice vacation.
To avoid misusing your credit card in a way that can have long-term impacts on your credit and finances, 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, never make only the minimum payment each month. Merely paying the minimum allows interest to stack up, making it more difficult to ever pay off your debt.
But making more than the minimum payment helps you pay off the debt faster. If you can, try to pay off the 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 late is a surefire way to be charged extra interest, lose out on benefits or cost savings, and see your balance continue to grow.
To keep from accumulating debt, make your payments on time each month so you’ll avoid any of these penalties. Keep an eye on payment due dates when you receive statements or bills so you won’t be late. You don’t lose anything by making payments early, but paying late can have major consequences.
Taking a Cash Advance
A credit card is not the same as a line of credit, nor is it an ATM card. A credit card is intended to be used as a method of payment for transactions, not as a cash withdrawal tool. Most cards carry substantial fees and interest charges — in some cases close to 30 percent interest — for cash advances.
Taking a cash advance against your card will use up a portion of your available credit. In addition, the extra charges will make it harder to pay back the money you advanced to yourself. To use your credit card properly and responsibly, be sure to avoid this common mistake. Remember, a cash advance is among the things you should never put on a credit card.
Overspending or Wasteful Spending
A lot of people who get a credit card immediately see it as a license to spend. Just because a credit card company has approved your application, issued a card and extended you credit doesn’t mean you should buy things you don’t need.
Self-control is the key to responsible spending. A new credit card does not change your monthly income, so it shouldn’t change your budget or 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. Credit card companies do this to prevent cardholders from spending too much, and also to help curtail the impact of fraud or charges on stolen cards. However, even with this cap, it’s still easy to spend beyond your means.
Consumers with credit cards need to periodically check their balance throughout the month to know how much they have charged. Failure to stay updated on your balance can leave you surprised with a large bill at the end of the month you might not be able to pay. To avoid the shock of a large or unexpected bill, keep track 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 you as you get it is a terrible idea. Not only does it trigger a huge bill, but it also leaves you with no available credit to use for purchases in the future, including emergencies. For instance, your car might break down, or you might run into large medical expenses.
If you get a large bill at the end of the month, you might not be able to pay it in full. As a result, you might have to pay off your bill over time, with considerable interest and other charges. Such behavior shows potential lenders you can’t handle credit responsibly, and makes it harder in the future to get another credit card or a loan for a home or car.
In short, never max out a credit card. If you’ve had a card for a while and think you might bump up against your credit limit due to 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 designed for that purpose. Doing so can help reduce fees and other charges over time, as well as maximize the benefits you receive from the card.
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Letting Someone Else Use Your Card for a One-Off Purchase
If you let someone use your card, you will still be responsible for the charges, regardless of whether the individual pays you back. Moreover, you might incur additional liability — for example, if someone uses your card to book a hotel room and then damages the room.
Applying for More Cards Than You Can Afford to Pay Off
Don’t apply for a bunch of cards you don’t need or can’t afford to pay off each month. Just because you’re offered a credit card, that doesn’t mean you should apply. Lenders 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 makes it harder to track card location and security.
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Failing to Read the Fine Print
Introductory rates typically reset after a specific period of time. Some cards also have fees that start after an initial period. These might seem like small issues, but they can cause major problems down the road. For example, you might start incurring charges that make it more difficult to pay your balance in full each month.
Just because a card looks appealing initially doesn’t mean it will still look good in two years. Read the fine print, and see what the card will look like after the introductory period ends.
Choosing a Card for the Wrong Reasons
People often fail to compare all their options. Not everybody needs a credit card. In fact, some people prefer debit or ATM cards.
For other people, credit cards are a great fit. But before choosing a card, compare the top candidates to find the one that’s right for you. Be selective — don’t just jump at the first opportunity to get a new card.
When you find the right card, you are likely to use it for years, and you might get a lot of benefits out of it. Choosing the wrong card can leave you in a poor situation, with charges you didn’t anticipate or benefits that you won’t use.
Transferring Balances Too Often or at the Wrong Time
Credit card companies often highlight a balance-transfer feature to attract customers. However, moving a balance from one card to another often only makes 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 lower-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 can have far-reaching consequences, potentially leaving you in debt that can take years to pay off. Before applying for or using a new card, do your research so you avoid the potential pitfalls.
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