Credit cards are great…until they’re not.
With rewards and other benefits, they can be a useful tool for saving money. Plus, you always have a way to pay for emergencies.
Unfortunately, too many people make big credit card mistakes that can cost them thousands of dollars in the long run. Check out this list of common credit card mistakes that people make to see how you’re doing.
1. Paying Only the Minimum Payment
It’s great! You only have to pay $35 a month on your credit card regardless of how much you spend!
Unfortunately, paying the minimum only stops you from incurring late fees. You still have to pay interest on your unpaid balance. With credit card interest averaging 16.22%, it doesn’t take long to rack up a high balance.
2. Charging Everything
Some people put everything on their credit cards to rack up the rewards. This is a great tactic, but only if you have your budget firmly under control.
Indiscriminately putting everything on your card makes it easy to overspend without realizing it. Suddenly your $4 container of yogurt costs you $20 because you can’t keep up with the compounding interest.
3. Not Understanding the Fees
If you don’t understand how the fees work, you shouldn’t be using the card — but that doesn’t stop a lot of people.
There are different fees that credit card companies will charge. Some charge an annual fee simply for having the card. Most companies charge different interest rates for purchases, balance transfers, and late payments.
Some cards may come with foreign transaction fees and most have balance transfer fees.
4. Maxing Out Your Card
Just because you have a $5,000 limit doesn’t mean you should use it — unless you have the means to pay it off immediately. Racking up the rewards is nice but racking up interest charges completely destroys any rewards benefits.
5. Not Understanding Your 0% APR Introductory Offer
Taking out a card with 0% interest can be a great move for a large purchase. However, the 0% interest doesn’t last forever.
You have to be aware of the date it ends and have a plan in place to pay off the balance before you start accruing interest. If you don’t, the interest that starts piling up could bury you.
6. Taking a Cash Advance
Don’t ever take a cash advance on a credit card. Not only will you typically be charged a 4-5% fee right off the bat, but also the balance begins accruing interest immediately. The grace period that you get with purchases doesn’t apply to a cash advance. This will not help you improve your credit score in the long run.
7. Feeling Overwhelmed
Once some people start down the rabbit hole to debt, they might feel overwhelmed and freeze up. They may even take a cue from the ostrich and take a head-in-the-sand approach, hoping their bills will go away if they just ignore them.
Suffice it to say, the problem will only get exponentially worse until you take steps to pay off your bills.
How Do You Compare?
Have you made any of these credit card mistakes? Are you still making them? Stop making them today and get closer to getting out of debt and reaching financial stability.