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Six Financially Fatal Credit Card Mistakes
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Credit cards have pretty much become an ingrained part of our society. Credit card purchases are common, and many of us begin using credit cards at a relatively young age. Credit cards are convenient, easier to carry than cash, and come with security features that can help protect you (once your cash is stolen, there’s no getting it back).
Of course, the down side to credit cards is that you can easily get into debt. Not all credit cards are created equal, and mistakes with any credit card can cost you big. As convenient as they are, sometimes credit cards are a little too convenient, and can lead to debt. If you want to make the most of your credit card, and avoid the pitfalls, here are six mistakes to avoid:
1. Paying Late
The biggest mistake you can make is paying late. Not only do late payments result in hefty fees, but they also negatively impact your credit. Plus, some credit card issuers will hike your interest rate when you make payments late. You will find that your credit score takes a hit when you make late payments — and your payment history is the most important part of your credit score.
2. Going Over Your Credit Limit
Many of us neglect to track our spending when we use credit cards. Since it’s not coming out of a checking account, it is easy to just swipe without going home and recording the charge. However, if you don’t keep track of your credit card spending, you risk going over your credit limit. Going over your limit can trigger fees and higher interest rates. Be careful if you are close to your limit; a late payment fee can put you over, triggering even more fees.
3. Paying Only the Minimum
The minimum payment is meant to be affordable. You pay the minimum, and suddenly everything seems affordable. You may not be able to afford a $2,000 home theater setup, but you can afford an $80 a month minimum payment. Unfortunately, if you pay only the minimum, most of your payment goes to interest — your principal is hardly reduced at all. Which the credit card issuers love. You keep paying for years, and repay up to three or four times what you originally borrowed.
4. Neglecting Mail from Your Credit Card Issuer
It can seem like a hassle to look through your monthly account statement. However, it’s vitally importnat that you take the time. You should look for fraudulent charges — and have them removed. Additionally, you need to watch for mailed announcements from credit card issuers. These announcements can include new fees, higher interest rates and other changes to terms and conditions that you should be aware of.
5. Cash Advances
A cash advance can wind up to be quite costly. Usually, they are charged a higher interest rate, so you will pay more for them. Plus, you will have to pay the cash advance fee charged by the credit issuer, and the ATM fees that might also be charged. A cash advance from a credit card can be one of the costliest things you do.
6. Spending Just to Earn Rewards
Sure, it’s great to receive rewards from your credit card. However, you shouldn’t spend just to get the rewards. Rewards are most effective when you use your credit card to buy things that you would have bought anyway. Realize, too, that carrying a balance renders your rewards useless. Your interest charges will outweigh your rewards, and you’ll find yourself in worse shape, with useless rewards.
(Photo: Images_of_Money)
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I don’t know what’s worse… Paying a $39 overdraft fee for a Starbucks Latte or paying the minimum on a credit card.
The only other mistake I would add is to now review your statement carefully and let fraudulent charges go through. This could anything from the tip & total being calculated wrong at a restaurant, or criminals actually charging up your card.
Good tips Herman, it’s sometimes hard to check for small errors/scams like that (tip being adjusted and such) but that doesn’t mean we shouldn’t be reviewing.
Great tips. I still use my credit card for gas and groceries since I do get 5% cash back. Since we’re on such a strict budget, I don’t spend more just because I’m paying with credit, and I’m able to apply that cash back right onto my monthly statement.
I have a comment about number five. My primary credit card is a Discover rewards card and about six months ago it started asking if I’d like cash back every time I used it at a grocery self-checkout station. At first I found it annoying, and I still do a little bit, but after I looked into it, I found that there is no penalty for getting cash back. No fee for the service. No instant accrual of interest. This is now my ATM machine.
Neglecting mail other than statements from a CC issuer is something I have been guilty of doing because so much of it is just unsolicited advertising. Because we don’t carry a balance, we have never been blind-sided for this but I WILL put forth the effort from now on.